Another View: Don’t blame Big Oil for price spikes

Gas prices are displayed at a station in Victorville in late February, when prices spiked in California.
Gas prices are displayed at a station in Victorville in late February, when prices spiked in California. The Victor Valley Daily Press

Jamie Court wrongly blames the oil industry for the recent rise in California’s gasoline prices (“Big Oil has lots of explaining to do on gasoline price spikes,” Viewpoints, April 20).

Court seeks to find a conspiracy where there is none. Prices rose because of unforeseen challenges at two refineries, one related to an emergency and the other a labor dispute. These challenges forced the refineries to temporarily stop operations. Both have been brought back online.

Court claims the oil industry refused to appear at a recent state Senate hearing. He is wrong.

I testified at the hearing regarding the behavior of fuel markets, a subject I know well after 40 years of study as an economist, and after having served as an adviser to the Federal Trade Commission and on the special task force organized by then-Attorney General Bill Lockyer that examined fuel markets in 1999 and 2000.

I testified on behalf of the industry because committee members sought the expertise of an independent economist who understood how supply and demand determines gasoline prices in any specific market.

I explained that the changes in gasoline prices in California were entirely consistent with those dynamics. Large price increases can be expected anywhere following the shutdown of refineries. Midwest consumers witnessed a very similar impact between January and April because refineries in Chicago suffered problems like those in California.

Prices rise when refinery accidents force cutbacks. Prices fall when the problems are fixed.

Gordon Schremp of the California Energy Commission provided a strong and compelling explanation for the recent price increase that was identical to mine. He explained that prices in California’s fuel markets tend to be more volatile than in other parts of the United States due to the state’s geographic isolation and the need for cleaner gasoline.

In an ideal world, refinery outputs would never be disrupted and price spikes would never occur. In this perfect world, there also would be no traffic delays, all airline flights would operate on time and your doctor would always see you on a moment’s notice. Unfortunately, delays and disruptions do occur.

Refineries also experience issues from time to time that require attention. In today’s market, fluctuations in gasoline prices are an inevitable consequence.

Philip K. Verleger Jr. is president of PKVerleger, a consulting firm that has done work for the Western States Petroleum Association.