California Oligopoly Gasoline Price-Spiking: Same as It Ever Was

Thursday, April 02, 2015

When California gasoline prices spiked a buck in February, all the usual suspects were trotted out: the state’s unusual blend of gasoline for environmental reasons; extra refinery down time for one reason or another; international market fluctuations; cyclical gyrations; and, of course, manipulation by an oligopoly of oil interests.

The first four could reasonably be discussed by informed citizens with an interest in doing so, but a bit more information might be required to make a proper assessment of the behavior by billion-dollar corporate interests.

Last week, two state Senate committees held a hearing to have a discussion with oil industry executives about the price rise and the current 80-cent pump price difference with the rest of the country. But they declined to attend.

The committee members could just as easily have pulled a copy of Attorney General Bill Lockyer’s 2000 report (pdf) on gasoline pricing, because not a whole lot has changed. In explaining price spiking, the report said, “West Coast refiners maintain lower inventory levels relative to consumption than refiners in the rest of the United States [and] there have been several refinery outages,” but the killer might be oligopoly:

“California’s gasoline market remains more concentrated and less competitive than the key refining areas east of the Rocky Mountains that supply the rest of the United States. Seven oil companies now control 98 percent of California’s refining capacity, and market 90 percent of the gasoline they refine through their own retail networks.”     

Back in Lockyer’s day, six refiners controlled 92% of the state's gasoline refining capacity. They accounted for more than 90% of gasoline consumed in state. About 70% of retail stations operated under station lease agreements with a major refiner.

Still, hedge fund billionaire and environmentalist Tom Steyer and the advocacy group Consumer Watchdog thought everyone’s experience would be enriched if the executives joined the conversation, and wrote a letter (pdf) to state Senate leaders telling them so. They asked for another hearing, proposed four questions and strongly suggested using subpoenas to compel attendance. 

Fourteen refineries produce most of the gasoline consumed in the state. “Two refiners control 55 percent of the state’s refining capacity,” they wrote.

“It’s outrageous that the oil industry would refuse to answer for the $550 million extra California consumers were forced to pay in February for their gasoline above the U.S. average, particularly as the hearings proved the oil companies were the ones profiting from the California price spike.”

The four questions are:

1. “Why did Tesoro tell investors that the company can continue operating refineries indefinitely even with the steel worker strike, yet shut down its refinery, precipitating the price spike?”   

2. “Why didn’t the refineries act more quickly to increase supply when it became clear that prices were going to spike?”

3. “Why do refiners keep so little inventory on hand compared to the rest of the country? Why should they not be required to keep the same amount as the national average?”

4. “Why won’t refineries publicly disclose real-time information about their operations and outages?”

–Ken Broder


To Learn More:

California Activists Call for Oil Company Subpoenas (by Rory Carroll, Reuters)  

Tom Steyer Wants “Answers” for California Gas Price Spike (by Christopher Cadelago, Sacramento Bee)

Tom Steyer and Consumer Watchdog Call on Legislators to Make Oil Company Executives Answer for February’s $550 Million Gas Price Spike (Consumer Watchdog)

Did Accident or Price Fixing Cause High Gas Prices? State Senators Ask (by Tiffany Hsu, Los Angeles Times)

Gasoline Pricing in California; Recommendations to Protect Consumers, Businesses (Attorney General Bill Lockyer)

Usual Suspects Surface as California Gasoline Prices Soar (by Ken Broder, AllGov California)

Report on Gasoline Pricing in California (Attorney General Bill Lockyer) (pdf)

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