Introduction The US average price of gasoline this week came within pennies of last yearÕs August high of $3.03, while California exceeded its all-time record of $3.38, reaching $3.40. This price spike has occurred even though crude oil prices since the beginning of this year held substantially below last yearÕs record highs. In addition, the spread between gasoline prices in the US and California has wid- ened.
A similarly abrupt price spike occurred last spring, but pump prices this year are higher and the expectation of analysts is that they have not yet peaked. The Foundation for Taxpayer and Consumer Rights asked independent oil analyst Tim Hamilton of McCleary, Washington, to examine the price increases nationally and in California, in comparison to the price of crude oil. Mr. Hamilton was asked: ÒDoes the price at the pump in the U.S. and California rationally follow changes in the price of crude oil?Ó To answer these questions, Hamilton compared the average price of gasoline with the spot price of the benchmark West Texas Intermediate (WTI) crude oil in the U.S. and California, from early April 2006 until April 23, 2007. The primary data source was the federal Energy Information Administration. HamiltonÕs conclusion is that the traditional link between the spot price of crude oil, which historically equaled about 55 percent of the price of gasoline, is broken.
The result of the broken price link is a marked and sustained increase in profits from the refining of oil into gasoline.
Pump Prices Fail to Reflect Crude Oil Prices The chief price components of gasoline are crude oil, refining costs and profits, distribution costs, retail markup and taxes. Because only the crude oil cost and the refinery profits are volatile, any pronounced change in the gap between crude oil costs and retail gasoline strongly reflects rising or falling refinery profits.
Figure 1 shows that the once-strong relationship between crude oil prices and gasoline prices appears broken, particularly in California. Retail prices in the state have risen since the lows of last November far more quickly than crude oil prices, but also far more quickly than prices elsewhere in the nation.
Last year, during the first week in April the average pump price for all grades of gasoline in California was $2.788, just 15.7 cents higher than the national average of $2.631. That 15-cent gap was long regarded as the norm. On April 23, 2007, the average price in California was $3.363, or 44.6 cents lower higher than the national average of $2.917. Yet the price of crude oil was 5.5 cents per gallon at the end of the charted period than in the beginning: $65.67 per barrel in April 2006 and $63.39 on April 20, 2007.
Figure 2 shows just the widening gap between US prices and California during the same period as the price of gasoline (all grades) rose nearly 29 cents a gallon nationally but 57.5 cents in California. Figure 3 shows the same gap between the US average and California prices, except that the US average gap between crude oil and retail gasoline prices is expressed as a level baseline, while the extra amount that California drivers pay shows as sharp peaks over the course of the year. Last spring, the difference was as low as 13 cents (April 6, 2006). This spring, the difference has hit nearly 55 cents (March 19). Of that 42-cent rise, less than 4 cents was due to the increase in CaliforniaÕs percentage sales tax. The remaining 38 cents per gallon is directly tied to inflated refinery profit margins. The price gap for California translates into fill-ups that cost $7 to $15 more than the U.S. average.
Figure 4 consists of Excel charts of the data used to create this report.
In the U.S. and California, Gasoline Spikes Higher As Crude Stays Below ‘06 Peak
$4.000 Prices bottom out on Nov. 7, 2006 $3.500 $3.000 l$2.500 p$2.000 $1.500 $1.000 $0.500 $0.000 US Average Retail CA Average RetailWTI Spot Crude
Difference Between Crude Oil Price and Gasoline, U.S. vs. California
Figure 2 $2.000 $1.800 o$1.600 a7-Nov-06 P$1.400 $1.200 $1.000 $0.800 US Pump DifferenceCA Pump Difference Figure 3
A Mountain of Difference
$0.600 $0.500 $0.400 $0.300 $0.200 $0.100
In cents per gallon, the amount that CA’s differential exceeded the national average
$0.000
Figure 3 A Mountain of Difference $0.600 $0.500 $0.400 $0.300 $0.200 $0.100 In cents per gallon, the amount that CA’s differential exceeded the national average $0.000 1st week Apr-06 Apr-23,2007
In cents per gallon, the amount that CA’s differential exceeded the national average
Figure 4101934435865
| 8 | Date | WTI crude $ per barrel | Date | US Average Retail | CA Average Retail | Crude Oil cents per gallon | US Pump Difference | CA Pump Difference | CA Diff. v US Diff |
| 9 | 31-Mar-2006 | 65.67 | Apr 03, 2006 | $2.631 | $2.788 | $1.564 | $1.067 | $1.224 | $0.157 |
| 10 | 7-Apr-2006 | 66.56 | Apr 10, 2006 | $2.727 | $2.856 | $1.585 | $1.142 | $1.271 | $0.129 |
| 11 | 14-Apr-2006 | 68.85 | Apr 17, 2006 | $2.828 | $2.942 | $1.639 | $1.189 | $1.303 | $0.114 |
| 12 | 21-Apr-2006 | 71.87 | Apr 24, 2006 | $2.960 | $3.114 | $1.711 | $1.249 | $1.403 | $0.154 |
| 13 | 28-Apr-2006 | 70.38 | May 01, 2006 | $2.966 | $3.248 | $1.676 | $1.290 | $1.572 | $0.282 |
| 14 | 5-May-2006 | 72.14 | May 08, 2006 | $2.955 | $3.379 | $1.718 | $1.237 | $1.661 | $0.424 |
| 15 | 12-May-2006 | 71.5 | May 15, 2006 | $2.992 | $3.376 | $1.702 | $1.290 | $1.674 | $0.384 |
| 16 | 19-May-2006 | 69.07 | May 22, 2006 | $2.938 | $3.370 | $1.645 | $1.293 | $1.725 | $0.432 |
| 17 | 26-May-2006 | 70.35 | May 29, 2006 | $2.913 | $3.312 | $1.675 | $1.238 | $1.637 | $0.399 |
| 18 | 2-Jun-2006 | 71.53 | Jun 05, 2006 | $2.937 | $3.316 | $1.703 | $1.234 | $1.613 | $0.379 |
| 19 | 9-Jun-2006 | 71.54 | Jun 12, 2006 | $2.951 | $3.271 | $1.703 | $1.248 | $1.568 | $0.320 |
| 20 | 16-Jun-2006 | 69.48 | Jun 19, 2006 | $2.917 | $3.245 | $1.654 | $1.263 | $1.591 | $0.328 |
| 21 | 23-Jun-2006 | 69.94 | Jun 26, 2006 | $2.914 | $3.209 | $1.665 | $1.249 | $1.544 | $0.295 |
| 22 | 30-Jun-2006 | 72.65 | Jul 03, 2006 | $2.979 | $3.234 | $1.730 | $1.249 | $1.504 | $0.255 |
| 23 | 7-Jul-2006 | 74.65 | Jul 10, 2006 | $3.017 | $3.271 | $1.777 | $1.240 | $1.494 | $0.254 |
| 24 | 14-Jul-2006 | 75.21 | Jul 17, 2006 | $3.033 | $3.286 | $1.791 | $1.242 | $1.495 | $0.253 |
| 25 | 21-Jul-2006 | 73.98 | Jul 24, 2006 | $3.048 | $3.267 | $1.761 | $1.287 | $1.506 | $0.219 |
| 26 | 28-Jul-2006 | 73.87 | Jul 31, 2006 | $3.050 | $3.244 | $1.759 | $1.291 | $1.485 | $0.194 |
| 27 | 4-Aug-2006 | 75.2 | Aug 07, 2006 | $3.083 | $3.239 | $1.790 | $1.293 | $1.449 | $0.156 |
| 28 | 11-Aug-2006 | 75.63 | Aug 14, 2006 | $3.047 | $3.259 | $1.801 | $1.246 | $1.458 | $0.212 |
| 29 | 18-Aug-2006 | 71.79 | Aug 21, 2006 | $2.971 | $3.208 | $1.709 | $1.262 | $1.499 | $0.237 |
| 30 | 25-Aug-2006 | 72.12 | Aug 28, 2006 | $2.893 | $3.143 | $1.717 | $1.176 | $1.426 | $0.250 |
| 31 | 1-Sep-2006 | 70.01 | Sep 04, 2006 | $2.777 | $3.055 | $1.667 | $1.110 | $1.388 | $0.278 |
| 32 | 8-Sep-2006 | 67.53 | Sep 11, 2006 | $2.670 | $2.994 | $1.608 | $1.062 | $1.386 | $0.324 |
| 33 | 15-Sep-2006 | 63.98 | Sep 18, 2006 | $2.549 | $2.894 | $1.523 | $1.026 | $1.371 | $0.345 |
| 34 | 22-Sep-2006 | 61.4 | Sep 25, 2006 | $2.429 | $2.806 | $1.462 | $0.967 | $1.344 | $0.377 |
| 35 | 29-Sep-2006 | 61.94 | Oct 02, 2006 | $2.360 | $2.728 | $1.475 | $0.885 | $1.253 | $0.368 |
| 36 | 6-Oct-2006 | 59.77 | Oct 09, 2006 | $2.310 | $2.646 | $1.423 | $0.887 | $1.223 | $0.336 |
| 37 | 13-Oct-2006 | 58.58 | Oct 16, 2006 | $2.274 | $2.585 | $1.395 | $0.879 | $1.190 | $0.311 |
| 38 | 20-Oct-2006 | 58.48 | Oct 23, 2006 | $2.255 | $2.525 | $1.392 | $0.863 | $1.133 | $0.270 |
| 39 | 27-Oct-2006 | 58.88 | Oct 30, 2006 | $2.264 | $2.479 | $1.402 | $0.862 | $1.077 | $0.215 |
| 40 | 3-Nov-2006 | 58.55 | Nov 06, 2006 | $2.246 | $2.442 | $1.394 | $0.852 | $1.048 | $0.196 |
| 41 | 10-Nov-2006 | 59.96 | Nov 13, 2006 | $2.278 | $2.509 | $1.428 | $0.850 | $1.081 | $0.231 |
| 42 | 17-Nov-2006 | 57.56 | Nov 20, 2006 | $2.285 | $2.541 | $1.370 | $0.915 | $1.171 | $0.256 |
| 43 | 24-Nov-2006 | 57.24 | Nov 27, 2006 | $2.292 | $2.539 | $1.363 | $0.929 | $1.176 | $0.247 |
| 44 | 1-Dec-2006 | 62.02 | Dec 04, 2006 | $2.342 | $2.541 | $1.477 | $0.865 | $1.064 | $0.199 |
| 45 | 8-Dec-2006 | 62.32 | Dec 11, 2006 | $2.340 | $2.549 | $1.484 | $0.856 | $1.065 | $0.209 |
| 46 | 15-Dec-2006 | 61.91 | Dec 18, 2006 | $2.366 | $2.606 | $1.474 | $0.892 | $1.132 | $0.240 |
| 47 | 22-Dec-2006 | 62.4 | Dec 25, 2006 | $2.387 | $2.651 | $1.486 | $0.901 | $1.165 | $0.264 |
| 48 | 29-Dec-2006 | 60.66 | Jan 01, 2007 | $2.382 | $2.656 | $1.444 | $0.938 | $1.212 | $0.274 |
| 49 | 5-Jan-2007 | 57.76 | Jan 08, 2007 | $2.354 | $2.677 | $1.375 | $0.979 | $1.302 | $0.323 |
| 50 | 12-Jan-2007 | 54.11 | Jan 15, 2007 | $2.280 | $2.628 | $1.288 | $0.992 | $1.340 | $0.348 |
| 51 | 19-Jan-2007 | 51.51 | Jan 22, 2007 | $2.216 | $2.584 | $1.226 | $0.990 | $1.358 | $0.368 |
| 52 | 26-Jan-2007 | 53.57 | Jan 29, 2007 | $2.213 | $2.535 | $1.275 | $0.938 | $1.260 | $0.322 |
| 53 | 2-Feb-2007 | 57.11 | Feb 05, 2007 | $2.237 | $2.579 | $1.360 | $0.877 | $1.219 | $0.342 |
| 54 | 9-Feb-2007 | 58.99 | Feb 12, 2007 | $2.287 | $2.677 | $1.405 | $0.882 | $1.272 | $0.390 |
| 55 | 16-Feb-2007 | 58.41 | Feb 19, 2007 | $2.341 | $2.755 | $1.391 | $0.950 | $1.364 | $0.414 |
| 56 | 23-Feb-2007 | 59.57 | Feb 26, 2007 | $2.428 | $2.841 | $1.418 | $1.010 | $1.423 | $0.413 |
| 57 | 2-Mar-2007 | 61.64 | Mar 05, 2007 | $2.551 | $2.941 | $1.468 | $1.083 | $1.473 | $0.390 |
| 58 | 9-Mar-2007 | 60.85 | Mar 12, 2007 | $2.605 | $3.114 | $1.449 | $1.156 | $1.665 | $0.509 |
| 59 | 16-Mar-2007 | 57.94 | Mar 19, 2007 | $2.623 | $3.167 | $1.380 | $1.243 | $1.787 | $0.544 |
| 60 | 23-Mar-2007 | 58.26 | Mar 26, 2007 | $2.655 | $3.198 | $1.387 | $1.268 | $1.811 | $0.543 |
| 61 | 30-Mar-2007 | 64.18 | Apr 02, 2007 | $2.753 | $3.275 | $1.528 | $1.225 | $1.747 | $0.522 |
| 62 | 6-Apr-2007 | 64.82 | Apr 09, 2007 | $2.848 | $3.299 | $1.543 | $1.305 | $1.756 | $0.451 |
| 63 | 13-Apr-2007 | 62.58 | Apr 16, 2007 | $2.922 | $3.352 | $1.490 | $1.432 | $1.862 | $0.430 |
| 64 | *4/20/2007 | 63.39 | Apr 23, 2007 | $2.917 | $3.363 | $1.509 | $1.408 | $1.854 | $0.446 |
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