California, we have a fuel problem.
Over the past two years, California gas prices have continued to soar, sparking some of the highest prices in the nation.
Oil companies are quick to point the finger at supply and demand, oil markets or the state’s clean air laws as causes for recent spikes, but don’t be fooled. These reasons merely serve as smokescreens to a much larger problem facing consumers at the pump – potential price manipulation.
However, for those concerned about gasoline following the oil price spike over the past few days, there’s possible relief in sight.
A bill, Senate Bill 448, looks to shine a spotlight on price manipulation, setting up the California Energy Commission to act as a watchdog for consumers and look for indications of fixed gas prices by oil companies in California.
Introduced by Sen. Mark Leno, D-San Francisco, the bill would require the CEC to consult with state and federal agencies and create statewide recommendations aimed at combating high and, often unpredictable, gas prices.
With profits of nearly $45 billion last year, it’s no secret oil giants like Chevron, Tesoro and Valero wield enormous power in California, from controlling supply and production to the price you pay for gas.
Having worked for more than 20 years focusing on creating efficient energy markets, I’ve seen it firsthand. I’ve aided in the prosecution of Enron executives and worked on market manipulation issues across the United States and Canada.
We’re now seeing this trend spread to Europe, as three top oil companies – BP, Royal Dutch Shell, and Statoil ASA – were recently subjects of a major raid by European Union antitrust authorities on suspicions of alleged collusion and oil price manipulation. For years, officials in Europe and the United States have also been concerned about monopolies on the industry and how oil and gasoline prices are set, ultimately affecting the prices consumers pay.
Right now, California gas markets are singing a similar tune, with a few oil majors controlling the majority of supply, and prices looking out of line from where you might expect them. In fact, as of last year, seven companies controlled 94 percent of all gas sales in California. And now that BP has sold its California refinery to Tesoro, just two companies, Chevron and Tesoro, will be making more than half of the fuel produced in California.
Entities like the Western States Petroleum Association are quick to blame price spikes on major incidences that caused a decrease in supply like BP’s Cherry Point facility fire, Chevron’s Richmond refinery fire and the recent power outage at ExxonMobil. These reasons would fail the litmus test on truth and transparency.
What WSPA and others won’t tell you is California has had an increasing gasoline surplus during these incidents – which doesn’t line up with the alleged supply shortage they claim. In addition, if a decline in production were to blame for high prices, prices would have jumped immediately after the outages, rather than two to three months after they occurred.
It’s clear we need to draw back the curtain on volatile gas prices once and for all. Passing Leno’s bill would go a long way at getting to the root of the issue. Californians deserve transparency from oil companies on how they conduct their business and should demand accountability from those that seek to profit at the hands of consumers who have little choice on what to buy.
Robert McCullough is principal at McCullough Research, specializing in oil and gas markets analysis. He is an adjunct professor of economics at Portland State University.