Last October the Attorney General of the State of Nebraska asked me, Ed Morse, professor of law at Creighton University, and Eric Thompson, professor of economics at the University of Nebraska in Lincoln to examine gasoline prices in Nebraska pre and post Hurricane Katrina to determine if there was illegal price gouging in the state. A copy of our full report is available at:
Several points of interest from our study included:
Ø Oil’s share of the price of a gallon of gasoline grew from 38 percent in 2001 to 51 percent in 2005. During this same period of time, as a share of price of gasoline, taxes declined from 30 percent to 16 percent, refining costs & profits dropped from 18 percent to 15 percent, and distribution, marketing and profits rose from 14 percent to 18 percent.
Ø For each gallon of gasoline, wholesalers and producers earned $1.79 (60 percent), government entities collected $0.48 (16.0 percent), transporters obtained $0.06 (2.0 percent), credit card companies received $0.09 (3.0 percent), and other vendors collected $0.52 (17.5 percent). This left $0.04 (1.5 percent) for retailers’ profit.
Ø Examining petroleum prices one week before hurricane landfall and one week after hurricane landfall, for Hurricane Ivan, the price of a barrel of oil rose from $44.61 to $48.46, or 8.6 percent and the price of gallon of gasoline increased from $1.23 to $1.33 or 7.8 percent. For Hurricane Katrina, the price of a barrel of oil increased from $63.27 to $69.47, or 9.8 percent, while the price of a gallon gasoline advanced from $1.85 to $3.26, or 76.6 percent. For Hurricane Rita, the price of a barrel of oil advanced from $63.00 to $65.47, or only 3.9 percent, as the price of a gallon of gasoline rose form $1.83 to $2.06 or 12.7 percent.
Ø Refinery capacity utilization declined from 97.1 percent one before Hurricane Ivan landfall to 90.2 percent one month after landfall, but rebounded to 94.2 percent two months after landfall. On the other hand, capacity utilization was 94.0 percent one month before Hurricane Katrina declining to 83.9 percent one month after landfall and plummeting to 81.6 two months after landfall.
Ø Using advanced statistical techniques, it is concluded that increases in the price of a barrel of oil accounted for 62.5 percent of the rise in the gasoline prices between June 2004 and October 2005. Declines in refinery capacity utilization, and increases in the share of oil imported accounted for 22.9 percent and 19.6 percent of the increase the price of a gallon of gasoline respectively. Other factors accounted for very little of the upturn in gasoline prices.
Ø Based on statistical modeling, Nebraska gasoline prices were approximately 10 percent less than expected between June 2004 and October 2005 based on statistical modeling.
Ø As a result of production and refinery gross refining margin per barrel of oil grew from $13.46 per barrel in quarter three of 2004 to $21.30 per barrel in quarter three of 2005.
Ø Despite the increase in margins and profitability for U.S. majors, the price-earnings ratios of the firms have declined. In other words, the stock price of U.S. majors rose much less briskly than profitability. This indicates that investors expect this profitability to be short-lived. While earnings per share have rose from $4.21 in September 2004 to $7.50 in December 2005, the price-earnings ratio declined from 12.5 in September 2004 and 8.7 in December 2005.
Ø The hurricanes in August and September of 2005 served much the same function that OPEC supply restrictions provided the nations of OPEC—higher prices, lower output, and elevated profits.
No evidence of price gouging here.