CALIFORNIA drivers tend to pay more for gasoline than in most other states.
Many industry watchers attribute the high fuel costs to unique forces—mainly, the state’s clean-burning gasoline formula—that have isolated the market and kept it tightly balanced between supply and demand.
However, some consumer advocates and politicians allege that price manipulation by oil refineries is the real blame.
This year, price fluctuations were surprising, as the price of crude oil began falling last summer, with pump prices following.
In February, Tesoro Corp. idled its Northern California refinery in Martinez after a nationwide union walkout. Next, Exxon Mobil Corp. scaled back operations at its Torrance facility when an explosion damaged an air pollution monitoring unit.
Average pump prices shot up nearly a dollar before floating back down. Last week, a gallon of regular gasoline cost an average of $3.44 in California, over 20 cents lower than a week earlier, and about 70 cents lower than a year earlier, according to AAA. However, California drivers are still paying nearly 70 cents more than the national average.
Whether those higher prices are a natural economic reaction or a sign of complicity between oil companies is up for debate.
“The public is used to paying $4 a gallon for gas but doesn’t realize that with crude at $60 a barrel, the gas price should be a dollar less than it is right now,” said Jamie Court, president of Santa Monica consumer advocacy group Consumer Watchdog. “Unless you drive through another state, you don’t realize how outrageous it is.”
Part of the problem, Court said, is that the state has a small group of companies able to set prices as they please, much like an oligopoly.
“No one would argue this is a competitive market…but that doesn’t mean there’s not concerted action, possibly through a tacit agreement, to raise gas prices artificially,” Court said, citing evidence of possible price manipulation such as a recent streak of higher premiums charged to brand-name stations by refineries.
Those stations—such as Chevron, Valero, and Arco stops—usually pay a bit more than independent stations for gasoline, in exchange for use of a recognizable name and special fuel additives.
“Over the last 16 years, the average gap has been 3 cents a gallon,” Court said.
Since May, that difference has turned into a 30-cent chasm sustained over several weeks — an occurrence seen only three times since 1999 and never for more than a single week, he said. Court said higher premiums at branded stations lift prices at all stations.
In addition, refiners are exporting record amounts of fuel to other countries and are keeping inventories low, Court said.
“These companies are pulling out all their tricks,” he said. “Rational economic behavior to an oil company can be price manipulation in another context.”
An unusual number of refinery outages—11, from February to May—were also suspicious-looking, Court added. However, proving company collusion is difficult in an opaque oil industry. The Petroleum Market Advisory Committee, which investigates gas price swings and effects on consumers, was also limited in the data it could access.
Refiners don’t need to disclose directly to the government when they plan to close for maintenance or when they want to hike prices. Billionaire activist Tom Steyer has mulled the viability of a possible ballot measure that would require more transparency on pricing and supply.
“They have to open their books—there are a lot more questions here than there are answers and we need a full accounting,” Steyer said. “We’re not talking about a small, discretionary amount of money for working people in California who have to commute to their jobs.”
After Court presented his case at a Petroleum Market Advisory Committee meeting in Berkeley last week, the Western States Petroleum Assn. trade group responded.
“Consumer Watchdog has made numerous inflammatory and inaccurate allegations this year about transportation fuel markets,” said spokesman Tupper Hull.
For years, California state senators have held meetings and launched preliminary probes on the subject of price fixing and consumer market manipulation. They even asked the U.S. Justice Department in 2012 to examine refineries one by one. The efforts, including a recent hearing in March, have been inconclusive.
“Prices paid by branded stations always adjust more slowly to an overall decline in prices than their independent counterparts because refiners are exercising their prerogative to hold prices up as their costs decline,” said Severin Borenstein, a professor at UC Berkeley’s Haas School of Business who serves on the Energy Commission’s advisory committee.
“In a concentrated market, they’re going to naturally take into account that when they reduce their output a bit and no one else can fill in, their output affects price. It’s not illegal as long as you’re not talking to other companies.” (Allyson Escobar/AJPress with reports from Los Angeles Times)
