President Biden urges US FTC to investigate gasoline prices

On November 17^th, President Biden sent a letter to United States Federal Trade Commission (FTC) Chair Lina M. Khan asking the FTC to investigate whether anti-competitive behavior or other potential misconduct by oil and gas companies could be causing higher prices at the pump. At the same time, the current administration has explained that changes in travel in 2020 due to the global pandemic led to a rapid decline in demand for crude oil and refined products, and prices fell.[1] The Energy Information Administration (EIA) recently found that demand for petroleum products “has largely returned to the pre-pandemic levels.”[2] As demand has grown faster than supply, prices for both crude oil and refined products have increased.[3]

As the letter notes, Chair Khan has already directed FTC staff to strengthen oversight of mergers in the oil and gas industry. President Biden has asked that “the Commission further examine what is happening with oil and gas markets, and that [Chair Khan] bring all of the Commission’s tools to bear if [the agency] uncover[s] any wrongdoing.”

The letter from the White House references a concern about the price spread between refined, blended gasoline and finished motor gasoline ready for consumer use. But at the same time, the Biden administration is ramping up investigations and potential enforcement actions; it is also publishing information and data reflecting market conditions that may help to explain recent pricing, at least in part. 

For example, the EIA highlighted higher than average exports of gasoline earlier this year.[4] In fact, exports in 2021 have sometimes been 41% higher than the previous five-year average.[5] The EIA also noted that gasoline exports to Mexico increased in 2021 due to restricted supply caused by a refinery fire there.[6] The administration also highlighted the recent disruption on a pipeline in the US carrying gasoline and other products, “which might have encouraged Gulf Coast refiners to export volumes to Mexico that would have otherwise have been distributed within the United States.”[7]

In addition to the FTC’s purview over antitrust matters, the agency also has anti-manipulation authority with respect to certain crude oil and product transactions. The Energy Independence and Security Act of 2007 prohibits market manipulation and false information in price reporting related to purchases and sales of crude oil gasoline or petroleum distillates and grants the FTC authority to assess civil penalties for violations of those prohibitions. The FTC has not yet flexed its enforcement authority in this area, but President Biden’s letter suggests the agency should do just that. If the FTC were to identify such violations, the EISA permits the agency to assess civil penalties up to $1,246,249 (adjusted for inflation) per violation per day.

All companies in the crude oil and products space should be prepared for increased enforcement attention from the FTC. Producers, owners/operators of refineries, transportation/transmission providers and commodity traders should all be vigilant. Certain related business activities could also be subject to enforcement attention from other regulators, such as the Commodity Futures Trading Commission.