SACRAMENTO — Gasoline prices in California, which typically run about 30 cents higher than the national average, have spiked to nearly a dollar higher over the past month in one of the sharpest run-ups in U.S. history.
From Feb. 1 to March 2, the average price for a gallon of regular gas in the state jumped from $2.43 to $3.40, and the climb continued even as crude oil prices fell.
The average price for regular unleaded gas was $3.30 per gallon Tuesday in Ventura County, down from $3.41 a week ago, according to AAA. The current price compares with a national average of $2.42.
State energy officials told lawmakers Tuesday the principal causes were:
A nearly 18 percent drop in refinery output caused by two unplanned disruptions.
An inability to quickly import California-grade gasoline to fill the gap.
The willingness of the affected refineries to pay any price to purchase gasoline from other sources.
Refineries typically sell 85 percent or more of their output through long-term contracts with purchasers, said Gordon Schremp, of the California Energy Commission. When they experience an unplanned outage, "they will pay almost anything to make sure their contractual obligations are met."
As a result of recent outages at two refineries, the remaining refineries rapidly marked up prices and drew down inventory in which only about 10 days' worth of supply is stored, he said.
He noted that by far the largest component of the price increase came in the form of higher profit margins for refineries.
Schremp testified before a joint hearing of two Senate committees that met to learn why gasoline prices in California tend to go "up like a rocket, down like a feather" — and what state officials might do to keep that from happening again.
Among the suggestions they heard were requiring refineries to stockpile larger inventories, mandating real-time reporting of refinery operations and inventories, and allowing consumers to buy their gas through long-term contracts similar to those they use to purchase cellphone service.
Those suggestions did little to satisfy senators concerned about the possibility of price manipulation by a refinery market controlled by just a handful of oil companies. Tesoro and Chevron produce more than half of the gasoline sold in the state.
"We have a very consolidated market. We have what is generally called an oligopoly," said Kathleen Foot, chief of the antitrust division in the state Attorney General's Office. "It takes relatively little in the way of signaling to reach a competitive détente similar to price-fixing."
Foot said she has been involved in several investigations into possible collusion after past run-ups in gasoline prices, but the state has not uncovered any evidence to pursue criminal or civil actions against oil companies.
Foot noted that refiners have no incentive to increase production capacity. She added that Shell sought to close a Bakersfield refinery a decade ago rather than seek a buyer for it, "but that doesn't constitute proof of anti-competitive activity."
"The market here is on a knife-edge between adequate capacity and shortage," she said.
Jamie Court, president of Consumer Watchdog, urged lawmakers to require refiners to stock larger supplies of inventory.
"We can't stop refinery outages, but we can supply a cushion," he said. "The system is made to break. The oil companies keep it running on empty. Refiners have every incentive to create a price spike like this."
Experts explained that California is on something of a gasoline island. There are no pipelines to bring fuel into the state, and most refiners outside of California do not routinely produce the kind of clean-formulated product
required to meet the state's air-quality regulations.
Schremp noted that a labor strike shut down operations at Tesoro's refinery in Martinez on Feb. 2, which was followed two weeks later by an explosion that shuttered the Exxon-Mobil refinery in Torrance. Those two disruptions reduced refinery capacity in the state by 17.6 percent.
"The isolated nature of California does not prevent gas from being brought in, but it takes time because it must be by marine vessel," he said. "Prices will rise rapidly because you can't bring in supplies immediately."
Although national refinery workers have agreed to broad terms of a contract settlement, workers at the Martinez plant have yet to ratify a contract. They are expected to soon do so. Schremp estimated the Tesoro refinery could resume operations in less than two weeks.
But Jay McKeeman, of the California Independent Oil Marketers Association, said there will be a lag before retail prices fall because the wholesalers he represents will need time to recover.
"Fuel marketers suffer from a loss of profit margin on the upswing," he said. "They need to recoup losses on the back side of the spike."
Economist Philip Verleger, testifying at the invitation of the Western States Petroleum Association, suggested Californians follow the example of Eastern states in which consumers purchase heating oil for the winter through long-term contracts that lock in the price.
"Give consumers the option of buying on a longer-term basis," he advised.