Consumer Watchdog has revealed to a state oversight panel new tactics by which California oil refiners had their most profitable years ever, and state drivers paid more at the pump than ever before compared to US drivers. The non-profit group said that California drivers will have paid US$10 billion extra for their gasoline by year's end due to gouging based on an analysis of price and consumption.
Consumer Watchdog found that between February and November state drivers already shelled out US$9.6 billion more than US drivers when gas prices spikes began. After taking out California's slightly higher taxes, state drivers paid US$8.1 billion extra at the pump, or US$340 per driver, from 1 February to 30 November.
Consumer Watchdog testified before the California Energy Commission's Petroleum Market Advisory Committee (PMAC), which was charged with creating solutions to gas price volatility. The non-profit group revealed that even as gasoline supplies have stabilised, oil refiners have used back door trades and inside information about competitor pricing to keep gas prices artificially high. Currently, average US gas prices are US$0.75 less than LA's and US$0.65 less than California's.
"By dumping cheap fuel in secret trades and artificially pumping up gas prices at their branded stations, oil refiners have raked in billions of dollars in unreasonable profits at Golden State gas pumps," said Jamie Court, President of Consumer Watchdog.
Court testified that with gasoline inventories stable refiners have gamed the system by keeping transactions involving cheaper gasoline hidden from the rest of the market and using contractual power over branded gasoline stations, 80% of the market, to inflate pump prices by US$0.30 or more.
The elements of the scheme involve:
1. Not allowing the stations owners to see competitive prices by selling, for the first time in history, through secret deals to the small unbranded market (20% of stations) at prices that are US$0.20 - 0.30 less than the public ‘rack’ price.
As a result:
- Wholesale gas prices are significantly cheaper than the spot price published in OPIS, leading to higher prices on deals, and retail purchases.
- OPIS doesn't have access to these deals, and most dealers, branded and unbranded, are not privy to 'special deal' pricing.
- Station owners overpay based on lack of market information and pass that price on top consumers.
2. In the majority branded market (80% of stations), refiners manipulate contracts to keep retail prices artificially high.
- Refiners manipulate contractual power over branded stations to keep prices high at the 80% of stations that receive branded fuel at Dealer Tank Wagon (DTW) or at the branded rack.
- DTW prices & branded rack prices are US$0.30 higher than unbranded prices.
- By setting higher prices at branded stations, the street price remains artificially high.
3. By covertly sharing pricing data, refiners collude without overt communications:
- Refiners know DTW prices at almost every street corner through the Lundberg Survey, which publishes DTW prices.
- This lets refiners know all competitor's prices without having to discuss with competitors.
- Refiners act in concert to keep prices high based on shared pricing information.
The result is profits from oil refining in California that have never been before. California's three largest refiners, Tesoro, Valero & Chevron had their best quarters ever in California in 3Q15. Tesoro made four times more than the same quarter last year, Valero made 12 times more.
Consumer Watchdog recommended to the panel greater transparency:
- All Dealer Tank Wagon prices should be publicly disclosed.
- All deals over 2500 bbls should be disclosed – eliminating backdoor ‘dark market’ deals.
"If all market players have the same information, the market cannot be gamed," said Consumer Watchdog researcher Cody Rosenfield.
Consumer Watchdog also recommended that the CEC should receive and publish data on following aspects of the refining industry:
- Maintenance schedules.
- Inventory plans.
- Unplanned maintenance repair timelines
- Imports and exports.
Adapted from press release by Rosalie Starling
Read the article online at: https://www.hydrocarbonengineering.com/refining/17122015/consumer-watchdog-californians-overpay-us10-billion-for-gasoline-in-2015-1999/