Existing antitrust laws already forbid oil companies from engaging in monopolistic practices or colluding with competitors to suppress supplies and raise prices. The new bills propose to add "price gouging" to the list of illegal activities.

Sounds good to me.  Let's see it work.  Are there any prosecutors left at DOJ that are not "loyal Bushies," which is to say, faithful servants of the oil industry?  No?  Darn, I was afraid of that!  I guess we need those windfall profits taxes after all, then.  And we need them now because there is already evidence that the industry is restricting supply and significantly raising prices as a result.  According the article you are quoting from, David:

For the week ending June 8, the U.S. government's Department of Energy Information Administration reported that the nation's oil refineries operated at 89.2 percent of their total capacity, processing 15.37 million barrels of crude oil each day, down 2.9 percent from the same week in June a year earlier.

At the same time, drivers are using up more gasoline, creating an even larger demand and rising prices.

What is necessary to prove the crime is a formal agreement to act to manipulate prices to the detriment of consumers or evidence of anticompetitive market signaling followed by evidence of what appears to be coordinated actions consistent with the signal.  Not sure if that is apparent (yet), but now that representatives for the industry are very publicly encouraging a roll back of refining capacity, it should be easier down the line.

Of course the other part of the story is that the government mandated substitutes for oil products are going to see prices go through the roof as the industry scrambles to press limited and degraded inputs (water, soil, oil, and natural gas) into massive increases of oil crops.  Again, couldn't we just spend the same money to make it possible to simply reduce demand by the full 15% target instead of putting us in a vulnerable position with respect to food security for the swelling ranks of the poor?  Oh, right, loyal Bushies.  Never mind.

The oil industry MUST be shut down, NOW !
I suspect they know it, so of course they will stoop to extortion to fill their coffers.   They won't fess-up until they are forced to, and so far everyone still loves their car.

LOL, I expect Big Oil will be liable for the remediation of the Earth... sued for their last toe hair... oooh wouldn't want to be in the oil business.

omegafour.com

Removing subsidies to oil would mean higher prices, which would help make other options competitive and create an incentive for conservation.

Well, maybe not.  In the short term, the demand for gasoline is very inelastic, so the quantity of demand doesn't change much, but people are willing to pay through the nose.  But what if the windfall profits tax was used to directly reimburse consumers for purchases of alternative fuels?  So long as the price of the alternatives after being offset by the amount of the subsidy was less than the prevailing cost of gasoline, consumers would tend to substitute alternative fuel for gasoline until the prices, including the subsidy effect, came back into equilibrium, in part due to increases in both the price and quantity of alternative fuel.

Of course, we may not have any substitute fuels that are truly socially desirable (all things considered) and more or less competitive with gasoline under more or less today's state of the industry.  But if we put the subsidy into public transportation, that could have a similar effect, promoting both lower (or at least more stable) gasoline prices and conservation.  Certainly, when BART offers free rides to consumers in the S.F. Bay Area, it moves a lot of people out of their cars and onto the trains in a hurry.

Whats so suprising about them giving an "ultimatum" that they don't intend to build new refineries?

They just don't like building refineries.
By keeping the supply of refined product tight, they get to benefit of making their products artificially more expensive.

Same way refined diamonds are scarce, even though unrefined diamonds not scarce.

-David Ahlport

Any increase in costs (in any busienss) weigh toward higher prices.  Fortunately, we GW/PO types want higher prices.

As Odo says, when referring to high prices for oil, all I can think of is "You say that like it's a bad thing."  

Second, raise your hand if you want an oil refinery located nearby.  Hmmmm, I don't see any hands.  I think you'd have a far easier time sighting a nuke near most people than an oil refinery (with good reason).  Oil refineries are what rich people want to site near poor people so that rich people can keep having cheap gas.  If you've ever been through Louisiana or Houston or parts of NJ, you know why new oil refineries are not popular.

Lastly, Robert Rapier explained why the refinery capacity thing is a canard (see links in original posted here:  http://i-r-squared.blogspot.com/2007/06/gasoline-prices-p ...):

U.S. Refinery Capacity

The problem, I have read on many occasions, is that we aren't building any new refineries, and that "limiting refinery capacity seems to make more money for oil companies than expanding it." Claims like the following from the Foundation for Consumer and Taxpayer Rights - are quite common:

   America's big oil companies figured out long ago that they could make more money by making less gasoline. That's why the industry hasn't built a new refinery in 30 years. Since deregulation of the refinery business in 1982, oil consumption has increased 33% but oil companies have kept refining capacity near what it was 25 years ago. Why not? They know that the scarcer the product, the bigger the profit.

Even members of the Senate Committee on Energy and Natural Resources seem to believe this, with New Jersey Senator Robert Menendez recently commenting in a Senate hearing on gas prices:

   

Senator Menendez: Isn't there a reality that we are paying for some industry decisions that actually reduced refining capacity in this country? I mean there was a time that we had greater refining capacity, and the industry reduced that refining capacity, and as a result of making that decision, consumers today find themselves with exactly the consequences that you have described in your testimony before.

There are elements of fact and elements of fiction in the preceding statements. So, what's the scoop? Are oil companies cutting refinery capacity in order to boost profits?

In the past 10 years, refining capacity in the U.S. has increased by about 2 million barrels per day, which is equivalent to about 10 good-sized refineries.  Capacity expansions equivalent to 8 more new refineries have been announced for the next 4 years (although some refiners have recently suggested that some expansions may be put on hold as a result of the stated goal of reducing gasoline consumption by 20% in 10 years - in order to avoid an oversupply situation). So while it is true that new refineries aren't being built, it is certainly not true that capacity is stagnant. There are several reasons for expanding existing refineries as opposed to building new ones.

First, it is less expensive per barrel to expand an existing refinery than to build a new one. The estimates I have seen suggest that existing refineries can be expanded at 60% of the per barrel cost of building a new refinery. Second, the permitting process for building a new refinery is onerous. A group in Arizona has been trying to build a new refinery, and it took them 7 years just to get the permit. If they proceed and build the refinery, it will have taken 13 years from the time they started the process. (Even as I was working on this essay, they have announced a further 1 year delay). Finally, while everyone seems to want more refining capacity, nobody seems to want a refinery in their community. This makes building a new refinery next to impossible. As Investor's Business Daily recently asked Senator Chuck Schumer: "Just where in New York state would you like a new refinery to be built...?"

However, the critics are correct on one point. Starting in the early 80's, U.S. refining capacity did drop significantly, before beginning to climb back up in the 90's. The reason for this is quite simple: There was far more refining capacity than was warranted by the demand. The result was that gasoline was $1.00 a gallon, and many oil companies were losing money. Many refineries shut down. Some oil companies went out of business. Property values in "oil towns" like Houston plummeted. Yet many view oil companies as if they are public utilities. But the majority are owned by shareholders, who expect a return on their investment. Billions of dollars of capital are risked in this business, and if the rewards are poor (or negative), the risks won't be taken.

No industry can be expected to maintain high production levels in the face of poor or even negative margins. If milk producers make too much milk, prices fall and some producers go out of business. When that happens, supply is reduced and prices go up. The same is true for any other business. Yet people don't accept this very well in the case of oil companies, because many have come to view cheap gas as an entitlement.

U.S. Senator Ron Wyden has spent quite a bit of time investigating these issues, and his view is probably typical with respect to the evolution of refining capacity:

The Oil Industry, Gas Supply and Refinery Capacity: More Than Meets the Eye

In this report, Senator Wyden presents a number of "smoking guns", such as this internal Texaco document from 1996:

   

"As observed over the last few years and as projected well into the future, the most critical factor facing the refining industry on the West Coast is the surplus refining capacity, and the surplus gasoline production capacity. The same situation exists for the entire U.S. refining industry. Supply significantly exceeds demand year-round. This results in very poor refinery margins, and very poor refinery financial results. Significant events need to occur to assist in reducing supplies and/or increasing the demand for gasoline."

Senator Wyden skipped right past the part about poor margins and poor financial results, and focused on the "smoking gun", that either supplies needed to be reduced or demand for gasoline increased. He then gives a list of the refineries that have closed since the mid-90's, apparently failing to connect these events with "poor refining margins." Here are the refineries he lists that closed in 1995:

    Indian Refining Lawrenceville, IL
    Cyril Petrochemical Corp. Cyril, OK
    Powerine Oil Co. Sante Fe Springs, CA
    Sunland Refining Corp. Bakersfield, CA
    Caribbean Petroleum Corp. San Juan, Puerto Rico

Do you recognize any of those names? Probably not, because most of the companies that shut down did so because they went out of business. Margins were too poor to remain in business for some. For others, it was failure to comply with environmental regulations (some of the closed refineries are now Superfund sites). Yet Senator Wyden presents a picture in which it was a systematic and cooperative effort between oil companies to reduce refining capacity - and that refinery capacity should have been maintained at any cost (as long as oil company shareholders are the ones to bear those costs). Somehow "the industry" is culpable for the closure of a number of marginal producers - many of whom went completely out of business. But it was years of poor returns in this cyclical business that drove down refining capacity.

Even in the past 10 years, refinery margins have turned negative on numerous occasions. The problem is that many people take a snapshot of the current view and believe this is normal. See the data that the IEA has accumulated (XLS download warning). Shall we expect that those who are calling for measures to be taken to address the current refinery margin situation will be calling for the government to extend a helping hand the next time margins go negative? Somehow, I doubt it. (Incidentally, for those who think oil companies have boosted their margins by raising prices, how do you explain the incredible variability from month to month? How do you explain negative margins?)

Paul Sankey, an analyst with Deutsche Bank, testified on May 15th before the Senate Committee on Energy and Natural Resources. He pointed out the long-term factors that have resulted in the refinery capacity we have today:

   

The reason for the massive recent run up in prices can be traced back to the last significant period of high prices, in the late 1970s, which forced lower gasoline demand, then more efficient cars, which led to excess refining capacity, which led to years of poor returns in refining (and cheap gasoline prices), which disincentivised investment in refining and encouraged demand, and which has ultimately led to today's intense market tightness.

The bottom line on the refinery capacity issue is that yes, refining capacity has been reduced at times. And there were perfectly valid reasons that this happened. It is also true that capacity is short at the moment - if the objective is to maintain sub-$3 gasoline prices. But, reduced investment in refining capacity is indeed a key factor behind the current gasoline price spike. If some want to level the charge that refiners failed to accurately anticipate demand growth, then that charge is accurate. But like the rest of us, refiners don't have crystal balls.

some oil executives are now warning that the current shortages of fuel could become a long-term problem, leading to stubbornly higher prices at the pump.

They point to a surprising culprit: uncertainty created by the government's push to increase the supply of biofuels like ethanol in coming years.

Congress is considering legislation calling for a nearly fivefold increase in the use of ethanol.

That has forced many oil companies to reconsider or scale back their plans for constructing new refinery capacity.

The concerns were echoed in a recent report by Barclays Capital, which said the uncertainty about the ethanol growth ''will do little to accelerate desperately needed investment in complex United States refining units.''

''Indeed, it is likely to deter and further delay investment, if not rule out many refinery investments completely.''

''The policy environment has shifted dramatically,'' said Mike Wirth, head of global refining business for Chevron. ''There is a great risk that has been introduced to projects, predicated upon increasing supplies, that the demand may not be there.''

Meanwhile, demand for gasoline continues to climb worldwide.  This is what passes for analysis in the mainstream press.