The Oil Industry

One of the more enduring controversies in California’s oil industry--the charge by state and local authorities, independent oil producers and others that “Big Oil” has long conspired to fix prices--refuses to die.

In fact, the issue is alive and well as the result of last month’s decision by the 9th Circuit Court of Appeals. It found that California and Long Beach officials had offered sufficient evidence of a 1970s price-fixing conspiracy by Chevron, Unocal, Mobil, Shell, Exxon and Texaco.

The appeals court reinstated a lawsuit that had been thrown out by a Los Angeles federal judge after years of litigation. The suit claims that the companies conspired to pay unfairly low prices to the city of Long Beach for oil they pumped from the city’s tidelands.

More broadly, the $550-million suit says the companies have been trying to monopolize and control the production, distribution, purchase and sale of crude oil on the West Coast.

To a greater degree than anywhere else in the country, many industry experts say, oil production, refining, transportation and marketing in California--isolated from outside competition by geography and a lack of interstate pipelines--are controlled by the major oil companies.

This has led to artificially high prices for consumers, even though crude oil at the wellhead in California is extremely cheap, a raft of lawsuits has charged over the years.

“We’re at the mercy of the majors here, and the claim is collusion. They say the boys get together at the Jonathan Club bar and decide what prices are going to be,” says oil consultant James McDonald of San Marino. “But nobody’s been able to prove it.”

Many energy experts believe that California’s relentless rise in gasoline consumption will subside as a result of the sharp jump in prices this spring following the Alaskan oil spill.

With no relief expected through summer and a nickel-a-gallon jump in the state gasoline tax expected to win legislative approval, the state’s string of record sales might be in danger.

But there was no sign of it through February, the latest figures available. Motorists bought 1.002 billion gallons, the most ever for the short month and the 10th consecutive monthly record, according to the State Board of Equalization.

After the skyrocketing gas prices cut demand in the late 1970s, consumption soared after prices collapsed in 1986. The rise has tested the capacity of California refineries to meet the demand.

Unless significant amounts of gasoline can soon be displaced with alternative fuels for cars, as local air-quality officials hope, studies have suggested that the state will increasingly rely on gasoline from Mexico, Canada or the Far East.

One frequent oil industry explanation for the sharp run-up in gasoline prices after the Alaska oil spill--the coincidental impact of new strict federal standards on the volatility of gasoline--does nothing to explain California’s record price spike.

California has had strict federal standards on volatility for years, and refineries here were doing nothing this spring that they don’t always do.

At issue is the volatility of gasoline, or its tendency to vaporize at atmospheric pressure and contribute to smog. The Environmental Protection Agency is requiring reduced volatility in the summer, which boosts the cost of refining and leads to reduced yields of gasoline per barrel.