UPDATE 2-Senators ask U.S. to probe Calif. gasoline prices
* California largely cut off from US fuel delivery network
* Senators say refiners may have falsely reported unit status
WASHINGTON, Nov 27 (Reuters) - Six U.S. senators on Tuesday called for the U.S. Justice Department to investigate whether market manipulation by West Coast oil refiners contributed to a price spike in May and October that sent gasoline prices to record highs above $5 a gallon.
The senators, all Democrats, want the Justice Department to conduct a "refinery-by-refinery probe" and subpoena records from California refineries to see whether public reports of maintenance shutdowns were accurate. Two of the state's largest refiners are Valero Energy Corp and Tesoro Corp.
"We are requesting a Department of Justice investigation of possible market manipulation and false reporting by oil refineries, which may have created a perception of a supply shortage when in fact refineries were still producing," the senators said in a letter to U.S. Attorney General Eric Holder.
"We will review the letter and respond accordingly," said Justice Department spokeswoman Adora Andy.
California, the most populous U.S. state and also the biggest gasoline market, is largely cut off from U.S. national pipeline and refinery networks and thus more subject to supply and price disruptions.
The senators cited a report from independent energy consultant Robert McCullough that said two West Coast refineries continued to operate throughout May despite reports they were shut for maintenance.
A report issued on Nov. 15 by McCullough Research found that during gasoline price spikes in May and October in California, when drops in production were being blamed for the increases, gasoline inventories actually rose across the state, home to the nation's largest gasoline market.
"An exhaustive review of California refinery emissions data reveals inconsistencies between when refineries were producing petroleum products and publicly reported maintenance shutdowns," the report said.
The California gasoline market has been rocked by a series of refinery mishaps, including an Aug. 6 fire that shut down the key crude refining unit of Chevron Corp's 245,000 barrel-per-day plant in Richmond and a reported power failure on Oct. 1 at Exxon Mobil Corp's 149,500-bpd Los Angeles-area refinery in Torrance.
On Oct. 5, Reuters, citing sources, reported that a "short squeeze" in trading markets may have played a role in an unprecedented wholesale price increase of almost $1 a gallon for California-grade gasoline.. California's two Democratic senators -- Barbara Boxer and Dianne Feinstein -- have both cited the Reuters report as cause for further investigation.
Valero, the nation's largest refiner, said past investigations into alleged gasoline price manipulation have consistently come up empty, and that unique factors make the California gasoline market vulnerable to price spikes. Those include boutique blending requirements that make it nearly impossible to import supply from outside the state, said Valero spokesman Bill Day said on Tuesday.
"The self-inflicted factors that contributed to the temporary price increase in California remain in place," Day said. "You don't need a federal investigation to figure that out."
Tesoro said its refining system "allowed us to bring additional gasoline supply to the Southern California area during the recent supply shortage, when it was needed most." The company declined to comment on gas prices or the potential for a Justice Department investigation, spokeswoman Tina Barbee said.
The letter said the Justice Department and its Oil and Gas Price Fraud Working Group need to make sure the market is free from price manipulation.
It was signed by senators Maria Cantwell and Patty Murray of Washington, Feinstein and Boxer of California, and Ron Wyden and Jeff Merkley of Oregon.
"While we applaud the Working Group for convening in April 2011, we see scant evidence that its members are policing these markets as required by law or cracking down on other practices that may be illegal and hurting consumers," the senators said.
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