Energy traders accused of illegal scheme to drive up California gasoline prices

California officials accused two energy trading firms Monday of illegally driving up gasoline prices through a complex scheme that cost the state’s motorists millions of dollars.

In a lawsuit filed by Attorney General Xavier Becerra, the state said Vitol Inc. and SK Energy Americas Inc., two trading firms based in Houston, of seizing on a Southern California refinery explosion in early 2015 to jack up prices over the next two years.

Becerra told reporters the scheme artificially raised prices “substantially more than $150 million” but the total figure remains unclear.

“It’s hard for us still to calculate this,” he said. “It’s unclear how deep the manipulation went.”

California officials have fumed for years about the state’s gas prices, which are routinely among the highest in the country. While the coronavirus pandemic has driven crude oil prices to their lowest level in years, California’s average price of $2.74 was nearly $1 higher than the U.S. average Monday, according to AAA.

Industry experts say the disparity is mainly the result of higher taxes and California’s strict clean-air regulations, which effectively limit the number of refineries that will blend gasoline to California’s specifications. Those regulations leave California vulnerable to severe spikes when even a single refinery shuts down.

But Becerra and Assemblyman Marc Levine, who joined the attorney general in announcing the lawsuit, said the case shows that price manipulation plays a significant role as well.

Explosion in Torrance

The lawsuit, filed in San Francisco Superior Court, says the problems began when an explosion shut down part of a major ExxonMobil refinery in Torrance on Feb. 18, 2015. The refinery is now operated by a company called PBF Energy.

Over the next few months, average gas prices in California jumped from $2.76 a gallon to more than $3.80.

According to the lawsuit, traders at SK and Vitol played a big role in the price spike. The employees teamed up to engineer a series of trades that had the effect of increasing the prices reported to the Oil Price Information Service, a private reporting service that has considerable influence on market prices.

“The goal of the scheme was simple: to drive up or stabilize the OPIS-reported price,” the lawsuit said. Their trades “created the impression to other market participants that there was strong demand.”

Becerra said the trades were so complicated that it took his investigators years to uncover them. “The devil is in the minute, intricate details,” he said.

The scheme kept prices higher long after they should have come down, said Kathleen Foote, a senior assistant attorney general.

“The usual shape of the curve was not happening,” Foote said. There were no allegations that OPIS itself did anything wrong.

The lawsuit identified several individual traders who participated in the scheme, including Vitol traders Brad Lucas and John Addison and SK employees David Niemann and Shelly Mohammed. The state said the traders from the two firms shared profits with each other.

Officials with Vitol and SK couldn’t be reached for comment.

Last October, in an unrelated case, federal regulators ordered Vitol to pay $2.7 million in penalties for making illegal trades in California’s wholesale electricity market. A Vitol trader was fined $1 million.

This story was originally published May 4, 2020 at 12:34 PM.