California oil industry, Cap-and-trade, Gasoline tax, Oil oligopoly, Oil prices

California oil: Refinery profit margins rise during price spikes

Repost from The San Francisco Chronicle
[Editor:  Significant quote: “A new report from the nonprofit group Consumer Watchdog argues that refinery profit margins in the state rise during price spikes — even when a company has to buy extra wholesale gasoline to make up for refinery downtime.”  – RS]

Refinery ills push price of gasoline up sharply

Higher crude costs add to spike at pump
By David R. Baker, 4 May 2015, 7:23 pm
The ExxonMobil refinery is seen after an explosion in a gasoline processing unit at the facility, in Torrance, Calif., on Wednesday, Feb. 18, 2015. Two workers suffered minor injuries and a small fire at the unit was quickly put out. The incident triggered a safety flare to burn off flammable substances. The facility about 20 miles south of downtown Los Angeles covers 750 acres, employs over a thousand people, and processes an average of 155,000 barrels of crude oil per day, according to the company. (AP Photo/Nick Ut) Photo: Nick Ut, Associated Press
The ExxonMobil refinery is seen after an explosion in a gasoline processing unit at the facility, in Torrance, Calif., on Wednesday, Feb. 18, 2015. Two workers suffered minor injuries and a small fire at the unit was quickly put out. The incident triggered a safety flare to burn off flammable substances. The facility about 20 miles south of downtown Los Angeles covers 750 acres, employs over a thousand people, and processes an average of 155,000 barrels of crude oil per day, according to the company. (AP Photo/Nick Ut) Photo: Nick Ut, Associated Press

California’s gasoline prices jumped 31 cents in the last week, pushed higher by rising crude oil costs and problems at several state refineries.

It’s the second time this year that California drivers have faced such a steep price spike. And it has some oil company critics livid at a state gasoline market they say is designed to fail.

“This is a problem that only benefits them, to the expense of California consumers,” said Tom Steyer, the billionaire environmental activist who has pushed to raise the oil industry’s taxes in the state. “When you look at an oligopoly, is there anyone there with an incentive to solve this problem? I would say no.”

The average cost of a gallon of regular in California hit $ 3.71 on Monday, according to GasBuddy.com. Less than a month ago, in mid- April, regular was selling for less than $ 3.10.

And while gas prices have been moving higher nationwide, California has by far the nation’s priciest fuel. Even Hawaii currently pays less, with an average of $ 3.20. The national average stands at $ 2.63, according to GasBuddy.com.

Part of the problem lies in crude oil prices, which have risen 34 percent since mid-March. But California’s sudden price surge also reflects unique aspects of the state’s gasoline market that have frustrated drivers for more than a decade.

California uses its own pollution-fighting fuel blends not found in other states. As a result, most of California’s gasoline is made by 14 refineries located within the state’s borders. The state also has some of the country’s highest gasoline taxes — almost 66 cents per gallon. And starting in January, California’s cap-and-trade system for reining in greenhouse gas emissions added 10 cents to the overall cost, according to estimates.

Since only a limited number of refineries make California grade gasoline, any hiccup in production can move prices. In February, Tesoro temporarily shut down its Martinez refinery in response to a labor strike, and an explosion hobbled Exxon Mobil’s refinery in Torrance ( Los Angeles County). Prices soared for four weeks.

Analysts blame the current spike on production glitches at the Tesoro refinery in Martinez and the Chevron refinery in Richmond, which suffered a flaring incident on April 21.

In addition, the Oil Price Information Service reported last week that Chevron took down a key unit at its El Segundo ( Los Angeles County) refinery for maintenance, prompting the company to buy up extra gasoline supplies on the wholesale “spot” market to fulfill its contracts to fuel distributors. A Chevron spokesman declined to comment on the El Segundo refinery.

The price spike may be easing, with the statewide average rising just 1 cent overnight from Sunday to Monday. Wholesale prices are already started to fall.

Consumer advocates have long argued that the oil companies benefit from keeping gasoline supplies tight in California, with too little fuel held in storage for when the next refinery breakdown strikes.

A new report from the nonprofit group Consumer Watchdog argues that refinery profit margins in the state rise during price spikes — even when a company has to buy extra wholesale gasoline to make up for refinery downtime. Soaring retail prices more than make up for the added expense of buying extra supplies, said Jamie Court, the group’s president.

“The oil companies know that even if it’s their refinery that’s knocked out, the higher prices will more than compensate them,” he said.

Court wants the state to require oil companies to maintain a specific amount of fuel in storage, to prevent or at least lessen future price spikes.

The U. S. Department of Energy is studying the idea of a fuel “reserve” on the West Coast — similar to the nation’s Strategic Petroleum Reserve — but has framed it as a way to prevent supply disruptions after natural disasters, such as earthquakes or tsunamis. Tupper Hull, spokesman for the Western States Petroleum Association, said California officials have considered the idea before — and rejected it as unworkable.

“Intuitively, setting aside large volumes of fuel from the market is not going to help,” Hull said.