By Janet Wilson, THE DESERT SUN
October 5, 2022
Gas prices at the pump hit record highs in many parts of California on Wednesday, with greater Los Angeles seeing an unprecedented average of $6.49 per gallon for regular. Prices at some Southern California locations hit more than $8 per gallon.
But experts said Golden State drivers whose tanks aren’t near empty may want to hold off on filling up, because relief may be in sight.
Statewide, prices reached $6.42 per gallon, up a penny from the day before, and just under the record average price of $6.44 set June 14. That’s nearly $3 higher than the national average price of $3.83 per gallon of regular gas, according to AAA.
By midday, however, there was good news: Wholesale spot prices for gasoline sold by refineries and others in the Golden State dropped by midday Wednesday by as much as $1.25 per gallon off recent highs and could fall further, said industry analyst Patrick De Haan with GasBuddy, which tracks oil and gas markets.
De Haan said the single biggest factor contributing to the decline was likely California Gov. Gavin Newsom on Friday directing state air regulators to allow oil refineries to immediately switch to producing cheaper “winter blend” gasoline a month earlier than normal. A costlier “summer blend” of gasoline that produces less dangerous smog when it mixes with hot summer sunshine is normally required in California from May until the end of October.
Newsom spokesman Alex Stack said in an email Wednesday: “Gov. Governor Newsom took direct action to bring Californians relief, transitioning to winter-blend fuel early and holding the oil companies accountable for surging gas prices despite low crude oil costs and record profits.”
But, he added: “While this is welcome relief, we’re still focused on getting answers for this unprecedented price spike.”
While some gas stations might drop retail prices as soon as Wednesday night, De Haan said more widespread declines would likely occur over the weekend, as station owners and operators use up the higher-priced supply in their tanks first, then fill them over the next few days with the lower-priced supply.
There was no immediate relief evident for consumers at the pump yet. In Riverside County, east of Los Angeles, prices hit a record average high of $6.37 per gallon Wednesday, up a penny from the day before, according to AAA’s daily tracker and a regional spokesman.
All through September, prices shot up, “skyrocketing by as much as much as 10 to 15 cents a day during the last week of September,” said Doug Shupe, spokesman for the Automobile Club of Southern California, which is AAA’s largest member group.
“This week we have not seen near the rate of increase, but they do still continue to rise,” he said.
‘The oil industry owes Californians answers’
California officials are not happy. State energy commission chair David Hochschild wrote to state refinery executives on Friday demanding that they explain why California oil prices shot up a record 84 cents per gallon in 10 days, a 50-cent difference compared to U.S. prices.
“This degree of divergence from national prices hasn’t happened before, regardless of planned or unplanned refinery maintenance, and no explanation has been provided. The oil industry owes Californians answers,” he said.
Newsom and Hochschild also pointedly noted Friday that even as crude oil prices have dropped globally, gasoline prices in the Golden State spiked sharply.
On Wednesday, as prices fell, Hochschild said in a written statement, “Now, even though the price of oil has decreased to $90 per barrel, today the average gas price at the pump has surged to $6.43.”
He dismissed longstanding comments by oil lobbyists that drilling permit issues are a key cause also as “misleading. The reality is 40% of the oil industry’s approved permits in California are still valid but have not yet been used.”
Cash back from the state
Many Californians straining under high gas prices will get a shot in their pocketbooks courtesy of the state government this month.
Even as inflation has surged, California has seen a substantial budget surplus. Newsom pushed for and won rebates for many Californians in this year’s budget package, with direct deposits expected to start showing up in accounts of those who file their taxes electronically within the next few weeks. Others will receive checks in the mail. Payments range from $200 for single people to over $1,050 for some families, depending on income levels and other factors.
Oil companies have long said that Californians pay much higher prices per gallon at the pump due to environmental requirements and an array of taxes.
But academics and consumer watchdogs have also documented a “mystery” per gallon surcharge that they say is greater than the state’s extra costs and fees.
A California Energy Commission breakdown of costs per gallon showed that in late August, all government taxes and fees accounted for $1.18 of the average $5.06 per gallon, while “refinery cost and profit” amounted to 64 cents. The rest was the cost of the crude oil, marketing, transportation, etc.
But by late September, when the per gallon average price hit $5.64, a whopping $2.18 of that was attributable to “refinery cost and profit,” while the combined taxes dropped slightly to $1.16 per gallon.
California does not currently require the refineries to separate out “profits” from “costs,” but a new law will require that those amounts to be disclosed starting in January.
UC Berkeley professor Severin Borenstein, who specializes in energy business administration and public policy, said approximately $40 billion in unexplained surcharges have flowed to California oil companies since he and fellow researchers began tracking the amounts seven years ago.
In August, Consumer Watchdog released a review of California’s five big oil refiners’ investor reports from the second quarter that they said showed “unprecedented, windfall profits that top $1 per gallon.” The group said these companies made three to 10 times more profits per gallon in April-June 2022 than a year earlier.
“These profit reports prove that the only reason Californians are paying so much more for their gasoline than drivers in every other state is because the big five refiners have the market power to charge them as much as they want,” said Consumer Watchdog Executive Director Jamie Court said this summer. “It’s time for Californians to know exactly how much oil refiners have profited from their pain at the pump and for oil refiners to be forced to give back their excessive profits.”
Maintenance cited as reason for supply crisis
But Borenstein, De Haan and Shupe said a combination of reasons drove up the prices. High springtime consumer demand for gasoline as COVID restrictions were eased prompted state refineries to delay regular maintenance to meet demand. However, last month, the refineries began catching up with that maintenance, and to do so, they must stop production to do required updates.
At least one large unplanned outage combined with the planned outages meant six of the state’s 14 refineries were not operational for part of the month, said Shupe.
“Unfortunately, California experienced an unusual supply crisis in September,” he said.
But Hochschild said in his letter to refinery executives that the explanation didn’t add up.
“According to our experts and outside experts we consulted, those events alone do not adequately explain the significant increase in retail prices in California,” he wrote. “Historically, refineries have planned ahead to maximize inventories prior to planned maintenance activities to avoid price shocks. But this year, refineries have allowed gasoline inventories to drop over the past several weeks to below the bottom of the seasonal five-year high-low band.”
Energy commission spokeswoman Lindsay Buckley said Wednesday that some refineries have responded, but declined to provide the responses while they are reviewed.
Industry representatives and market analysts note California is a domestic energy “island,” with all of its supply either produced from in-state oil fields or imported from other countries. There are no oil pipelines from Texas or Oklahoma, for instance, meaning any domestic imports would have to make high-cost trips through the Panama Canal.
The state will likely not be hit as hard by OPEC’s declaration on Tuesday that it will tighten supply, with cargo ships loaded with gasoline products from other countries set to arrive in coming days and weeks at ports along the West Coast, said Shupe and De Haan. That could bring relief to Oregon and Washington state drivers too.
Borenstein said while elected officials and journalists pay attention for a short while when prices rise sharply, in-depth research has been done by him and others on needed policy and other structural changes, especially as the state transitions to electric vehicles, but it’s largely been ignored to date.
California pump prices could fall to below $5 a gallon again, said De Haan, barring further complications. Shupe said he’s hopeful prices will be far lower for Thanksgiving and Christmas travel. But, he advised travelers not to forget that simple automobile maintenance, like properly inflating tires, can also save big money.
Janet Wilson is senior environment reporter for The Desert Sun and co-authors USAToday’s Climate Point newsletter. She can be reached at [email protected] or @janetwilson66 on Twitter