Sacramento, CA — Consumer Watchdog told a state panel looking into gasoline price manipulation today that a handful of big oil refiners have been able to charge California drivers 70 cents to $1 more per gallon than the rest of America because they have an information advantage over the rest of the market, the public and regulators.
Consumer Watchdog asked the California Energy Commission’s Petroleum Market Advisory Committee to recommend public disclosure by the state’s oil refiners of:
• Refinery Maintenance Schedules & Updates
• All Trades, Including Exchanges & Production Agreements
• Prices Refiners Charge Their Branded Stations, Known As Dealer Tank Wagon Prices
• Real Time Imports and Exports
Read Consumer Watchdog's presentation here: http://www.energy.ca.gov/assessments/petroleum_market/2016-04-22/presentations/Consumer_Watchdog_April_PMAC_Presentation.pdf
“Four oil refiners control 80% of the state’s gasoline production and the inside information they know about each others’ supplies and prices allow them to rig the market to keep gas supplies low, prices high, and drive out competition,” said Jamie Court, president of Consumer Watchdog. “California oil refiners had their most profitable year from refining ever last year because they kept California running on empty and Californians in the dark.”
He testified the transparency measures would ease volatile California gas prices disconnected from crude oil and production costs; stop ‘what the market will bear’ pricing, and stir competition.
Consumer Watchdog said that oil refiners already have insider information that is denied smaller traders, the public, anti-trust regulators and station owners, who have the potential to take steps to drive down prices in times of tight supply or when refiners make anti-competitive moves.
Court noted that California’s extraordinary gap with US gas prices in 2015 and record oil refining profits in the state last year were driven by the fact that Exxon’s Torrance refinery, which supplies 20% of Southern California’s gasoline, was offline almost the year. Its competitors knew this fact and were able to take advantage of it because of production agreements they had with Exxon to make up for lost supplies, but the rest of the market was in the dark. As a result, imports of gasoline were tiny and refiners kept the state running on empty, commanding outrageously high pump prices given low production costs.
“If the true state of Exxon Torrance was publicly known, oil refiners could not have shorted California’s gasoline market all year long,” said Court.
Court pointed out refiners know who conduct trades through their relationships and shared consultants, refinery maintenance schedules through shared maintenance teams, the duration of outages and production delays through secret production and exchange agreements with each other to compensate for lost supply. They also know the wholesale prices their competitors charge their branded stations corner by corner through the Lundberg Survey, which only refiners appear to be able to have access to.
Consumer Watchdog showed how even in times of ample supply oil refiners in Southern California, where 80% of the stations are branded and refiners determine the prices, set artificially high prices at their branded stations to keep street prices higher than they should have been.
In addition, Court pointed out that the Exxon increased its gasoline sales by 4% in 2015 despite the fact that its only refinery in Torrance was out for 11 months of the year. Exxon did this through production agreements with its competitors to use their refineries, including Tesoro, that signaled to the other refiners that Torrance would not be online for a long period of time. Meanwhile misinformation about Torrance led the market to believe that the refinery would be back online throughout the year, because Exxon had no duty to report its actual condition or true estimated uptime, sparking shortages and price spikes.
“Misinformation about Exxon Torrance led the market to stop imports in the summer of 2015 and cost consumers billions of dollars extra at the pump in 2015,” said Court. “A simple filing with the state about the true condition of the refinery would have opened this market to exports and saved consumers as much as $10 billion at the pump, which is how much more Californians paid in 2015 than US drivers for gasoline.”
“All imports of gasoline stopped in July of 2015 because of misinformation about Exxon’s Torrance refinery coming online and that drove gas prices in LA over $4 per gallon when the rest of America was hovering in the $2 range,” said Court. “Chevron and Tesoro knew the state of the refinery and bought up all available supplies on the spot market, sending prices up like a rocket over night. In real time, however, there was no record of these actions. A little sunlight would have deterred these refiners from cornering the market.”
Court also called into question the independence of the only source of market information, the Oil Price Information Service or OPIS, a private subscription service that was purchased this year by I H S, a company among whose owners also are the largest investors in the state’s big oil refiners. Vanguard Group owns 6% of OPIS (IHS) and is the largest shareholder in Exxon, Chevron, Tesoro, and second largest shareholder in Valero. Blackrock owns 4% of OPIS and is the second largest shareholder in Exxon, Chevron, Tesoro and the first largest in Valero.
“When the oligopoly of oil refiners in California also own the principal information service that sets the price of trades there’s an even greater need for mandated disclosure of information so that oil refiners are honest with the market,” said Court.
Consumer Watchdog said among the benefits of transparency are that it will:
• Create more opportunities for additional traders and importers to participate in the market;
• Empower branded retailers to demand competitive pricing from refiners;
• Guard against predatory exports that short a short supplied gasoline market
• Give regulators and anti-trust enforcement officials tools to understand anti-competitive pricing in real time.