"As crude (oil) goes up, we have to recover our costs, or we'd be bankrupt real quick," said Leland Griffin, manager of the Montana Refining Co. refinery in Great Falls.
Yet Gov. Brian Schweitzer, who called on the refineries Thursday to stop "gouging" Montanans, said he's not convinced by their arguments and asked Attorney General Mike McGrath to investigate possible price-fixing or "unfair trade practices."
McGrath said he shares Schweitzer's concern about the impact of higher fuel prices on Montanans, but that he's seen no evidence of illegal pricing.
He also pointed out that while Montana law prohibits price-fixing and "deceptive practices," it does not prohibit excessive prices or "gouging."
McGrath said his office has joined with the National Association of Attorneys General in a nationwide investigation of fuel pricing practices, and that he'll "respond to all citizen inquiries" about potentially illegal pricing in Montana.
Gasoline and diesel fuel prices have jumped as much as 40 cents a gallon this week in Montana, hitting $2.85 for a gallon of regular unleaded gas in some cities and topping $3 for supreme gasoline.
The Montana Petroleum Marketers & Convenience Store Association, which represents retail and some wholesale sellers of motor fuels, said prices could remain volatile over the next two to three weeks.
Prices could go higher and there may be limited grades of fuel available, said Ronna Christman, the group's executive director.
Fuel price spikes have occurred nationwide in the wake of Hurricane Katrina, which damaged oil drilling and refining operations in the Gulf of Mexico and the South.
Schweitzer, however, said Thursday that refineries in Great Falls and the Billings area purchase most of their crude oil from Alberta and Wyoming and sell gasoline primarily in Montana and neighboring states.
They shouldn't be affected by fallout from damage in the Gulf Coast, he said, and therefore are taking advantage of the market to unnecessarily raise prices for Montana retailers.
Schweitzer also said the claim of rising crude-oil prices doesn't hold water, because they've actually declined somewhat from highs late last week.
Griffin said the market price of crude oil has increased about $7 a barrel in the past week or so, and that his contracts to buy oil from producers are tied to that price.
"The thing people have a tough time understanding is that crude oil is a world commodity," he said. "The crude oil that we buy also goes to the Midwest and the Pacific Coast. It's the same world commodity that refiners buy everywhere."
For every dollar increase in the barrel price, the refinery must increase its price by about 5 cents per gallon of refined product, he said.
The Great Falls refinery's contracts are tied to the West Texas Intermediate price for crude oil, which was about $68 a barrel Friday, Griffin said.
He also said people are starting to hoard gasoline, putting more pressure on the supply, which was getting short already. That pressure drives up the price, Griffin said.
"All they're really doing is making the problem worse in the short term," he said.
Montana Refining sells gasoline to dealers and wholesalers within a 180-mile radius of Great Falls and has about 5 percent of the motor-fuel market in Montana.
The big refineries in Montana are Exxon-Mobil and Conoco-Phillips in Billings and CHS Inc. in Laurel.
Lani Jordan, director of corporate communications for CHS in St. Paul, Minn., said Friday that price increases for gas refined at Laurel is in response to tight markets in the Midwest.
Gasoline produced at the Laurel refinery heads east into North Dakota and other Midwestern markets, and there's more demand to fill markets usually filled by producers in the Gulf region, she said.
"We're dealing with a supply-and-demand situation," Jordan said. "It's market-pricing, which none of us enjoy, but it's the reality of what's going on right now."
Gasoline from the Laurel refinery is not sold in western Montana.
Exxon-Mobil and Conoco-Phillips officials did not return telephone messages seeking comment.
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