Mazza reports: "A new report calls into question gasoline price spikes in California this year, arguing costs outpaced the traditional supply-and-demand model and insinuating market manipulation on the part of oil refineries."
Are oil refineries manipulating gas prices? (illustration: Carlos E. Santa Maria/Shutterstock)
20 November 12
new report calls into question gasoline price spikes in California this year, arguing costs outpaced the traditional supply-and-demand model and insinuating market manipulation on the part of oil refineries.
The report, released Thursday by Oregon consultant group McCullough Research, tracked nitrous oxide levels -- chemicals released during normal refinery operations -- in the air near refineries. Researchers found that levels were normal during times that refineries reportedly were offline due to power outages, fires or other production interruptions.
Consumer Watchdog, a Santa Monica-based public advocacy group, is calling for a criminal investigation by the state attorney general into whether oil companies purposely misrepresented their production in order to increase gas prices and obtain windfall profits. The group also seeks to block a merger between Tesoro Corp. and BP's Carson refinery.
"The report raises some very good questions about refineries producing gasoline at a time they said they were not, or that they were scaling back," Consumer Watchdog spokeswoman Liza Tucker said. "Oil companies and forces close to them created the perception that gasoline supplies in the state were super tight as a result of glitches in the refinery system."
At issue are gas price spikes on the West Coast in May and October following a Feb. 18 fire at BP's Cherry Point refinery in Washington and an Aug. 6 fire at Chevron's refinery in Richmond, Calif. Media reports from industry experts attributed resulting price increases to weeks-long shutdowns following the fires. But the McCullough report found that nitrous oxide levels were normal throughout the reported Richmond plant shutdown, as well as during the Cherry Point shutdown.
Nitrous oxide, the report explains, "is a byproduct of the production process. When units are off-line, no chemical reactions are taking place and no emissions result."
The report also alleges that in May, at a time when Royal Dutch Shell's Martinez, Calif., plant was reported to be down for maintenance for two weeks, it appears to have been making gasoline for at least half that time, according to McClatchy Newspapers. That conclusion is reached from state environmental documents showing nitrogen oxide emissions had returned to normal at the refinery a full week before it was reported to have come back on line.
The research also concludes that gasoline inventories actually were building in May during a time in which West Coast motorists paid at least 50 cents more per gallon than the national average, the McClatchy report said. This inventory building, evident in data from the California Energy Commission, happened even as four refiners were supposedly down for some portion of May.
Tupper Hull, spokesman for the Western States Petroleum Association that represents area oil refineries, called McCullough's report a "conspiracy theory."
"The report does not show or prove that refineries are doing anything misleading or unlawful that would constitute manipulation of the market," Hull said. "The data does not show that anybody was producing gasoline. It just looks at emissions releases. The fact that there may or may not be emissions does not mean the refinery was producing fuel or somehow withholding supply."
Hull said some refinery operations are reported to the state but not made public for proprietary reasons.
McClatchy Newspapers reported that in California, the nation's most populous state, seven major players control most of the supply. They are vertically integrated, refining oil into gasoline and getting involved in the retailing of gasoline in the wholesale market. That system, McCullough said in an interview with the newspapers, lends itself to a market concentration that allows producers to subtly coordinate their prices.
"This is not perfect competition," McCullough said.
McCullough's research is an approximation because production data is incomplete and lags in time. Instead, using public information laws, he focused on data sent to air-quality regulators from continuous emission monitors installed in refineries. Some of this massive data is still provided on paper, not electronically.
"It's a very poor way to check for market power to have someone go through thousands of pages of environmental reports to look for inconsistencies," he said.
McCullough suggested it all highlights the need for real reporting of price information to regulators as is done in electricity markets.
On Oct. 1, Torrance's ExxonMobil refinery unexpectedly lost power and did not regain full normal operations until Oct. 5. The partial shut-down resulted in reduced local gas supply and contributed to price increases, Marie Montgomery Nordhues of the Automobile Club of Southern California told City News Service at the time.
The report suggests that oil refineries be forced to publicly release more details about such shutdowns to prove they are not gouging consumers with inflated prices.
"Our model of California gasoline prices indicates that the October prices were $.66/gallon higher than they would be normally, given the historical patterns of oil prices and gasoline inventories," the report states. "This translates to an enormous windfall profit in California ... of 25 million dollars a day at October's prices."
