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The Daily News of Los Angeles

Major oil companies reported this week that they enjoyed a high-octane first quarter of 2003, reaping huge profits from gas prices broke well past the $2-a-gallon barrier.

Consumer advocates accused the companies of price-gouging Friday as ChevronTexaco joined other oil giants in reporting profits as much as three times higher than a year ago despite the weak economy.

“You don’t need to be a rocket scientist to see the public’s being price-gouged,” snapped Jamie Court, executive director of the Santa Monica-based Foundation for Taxpayer and Consumer Rights.

“This is all about a small number of refiners manipulating inventories so their profits skyrocket. Their product costs don’t go up along with the price of gas. When you have pure profit reports every quarter, it’s pretty clear it’s rigged.”

Each of the five major refiners reported a significant jump in refining and marketing operations in the first quarter, most of them attributing the spike to higher gas margins. Most say the profits came after extended periods of narrowed profits or losses.

ChevronTexaco reported downstream earnings jumping $224 million from the same period a year ago. The Royal Dutch/Shell Group of Cos. saw profits in the segment more than double, to $1.06 billion. Earlier in the week, BP, ExxonMobil and ConocoPhillips all reported gigantic downstream gains.

“They are now in the windfall profits range,” said Bob van der Valk, a wholesaler with Cosby Oil in Santa Fe Springs.

“They’re making it on the back of the poor California consumers at the rate of 50 cents a gallon. That’s $20 million a day going into their coffers. … This is showing up now, so they can’t deny it anymore. They have to admit they’re doubling and tripling their profits now, raking it in.”

When van der Valk sells a gallon of gas to an unbranded gas station, it goes in the low-80-cents range. In comparison, his research suggests that a branded dealer pays in the neighborhood of $1.35 per gallon for essentially the same gas, only a small drop from the prices they were paying during record-setting levels in mid-March.

While crude prices and the spot market have plunged, dealer prices, and their corresponding retail prices, have fallen only moderately. Motorists paid an average of $1.968 for a gallon of regular in Los Angeles, according to the Automobile Club of Southern California, down from $2.156 a month ago.

ChevronTexaco defended itself, pointing to losses in the downstream segment all last year. While the San Ramon-based giant made $70 million from that segment this quarter, it lost $154 million in the same period a year ago and never enjoyed a quarter in the black.

“You think it was a good quarter? It was a better quarter,” said Fred Gorrell, a spokesman for the firm.

“This was the first positive earnings quarter in this segment in a year. I wish it wasn’t so, but it’s true. We need a couple more after last year’s $398 million loss.”

While Gorrell was downcast, others who scrutinize the industry weren’t so sure. With retail prices still high and margins up, Mark Mahoney of the Oil Price Information Service thinks finances should get better.

“Just wait until the second quarter,” said Mahoney, the service’s West Coast editor. “Basically, the first month of this one was horrible since the price of crude was very high. Now it’s come down and the refined prices are still in good shape. You ain’t seen nothing yet.”

The culprit, analysts and advocates alike agree, is the practice of zone pricing, in which branded dealers pay rates based on location, rather than the spot market. Though not illegal, experts say, the practice allows oil companies to charge dealers costs above market value.

“It’s ridiculous that you guys are paying so much while the rest of the market’s free-falling,” Mahoney said.

“It should be around $1.50, but you’re paying $1.98 (statewide). Until the zone pricing’s resolved, you will be stuck with the $2 gas every other year. (Ending the practice) would resolve some of the high prices. Something’s got to give, or you’ll see these profits all the time.”

Consumer Watchdog
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