State Gas Prices Soaring Faster Than Cost of Oil
Oil companies blame the recent spike in gasoline prices on the rising cost of crude oil. But in California, pump prices have jumped more than three times as much as oil prices in the last two months, state figures show.
Since the first week in January, the cost of crude oil delivered to California refineries has climbed an average of 12 cents a gallon, while the average retail price of regular gasoline statewide has soared 43 cents a gallon, according to the California Energy Commission.
The figures suggest that refiners -- and dealers to a lesser extent -- have been pocketing more money as consumers pay record high gas prices.
“The logical conclusion is that their profits have increased,” said state Energy Commission spokesman Rob Schlichting. “Whether that amounts to excessive profit or gouging -- that remains to be seen.”
Oil companies reject the notion that they are making undue profits at their refineries, and gas station owners say they are being unfairly blamed for raising retail prices when they face higher wholesale costs.
Without looking at the financial records of the oil companies and station managers, the state is unable to track their bottom lines. But energy officials get as close as they can to assessing profits by monitoring certain publicly available data.
For refiners, they take the cost of crude oil and subtract it from the wholesale fuel price. This leaves a refinery margin that includes non-crude oil expenses -- everything from production costs to fuel additives -- as well as profits.
From Jan. 6 to March 3, the margin at state refineries jumped 88.9%, from 27 cents a gallon to 51 cents. By contrast, the cost of crude rose 16.4% over that period, and the average retail price of gasoline rose 27.2%.
For dealers, the state compares what stations pay for their gasoline supplies with pump prices, minus taxes. The resulting dealer margin includes rent, salaries and other expenses, along with profits.
During the same period, the dealer margin rose 55.5%, from 9 cents a gallon to 14 cents.
Margin figures for both refiners and dealers are volatile, often bouncing around week to week.
Spokesmen for two oil companies with a big presence in California, ConocoPhillips and ChevronTexaco Corp., declined to comment on the situation and said they would defer to the American Petroleum Institute, an industry trade group.
John Felmy, the API’s chief economist, said California refiners have faced major new costs recently, including funding substantial facility upgrades and making a switch in fuel additives from MTBE to ethanol.
In addition, refineries typically shut down their plants for annual maintenance during the first few months of the year and then retool them to produce “summer gas,” a federally mandated and more expensive formula designed to limit smog as temperatures rise.
“I don’t doubt that some of that is profit,” Felmy said of the margin increase, “but also some of that is cost.”
California’s average price for regular gasoline is $2.012, according to the most recent weekly survey released Monday by federal officials. California prices often are higher than those for the rest of the nation’s because the state’s cleaner-burning gasoline is produced by only a handful of companies.
Alarmed by the speed and degree of the price increases at the pump, Sen. Barbara Boxer (D-Calif.) on Thursday called for an investigation of “possible manipulation” of the state’s gasoline supply.
Boxer asked the General Accounting Office, the investigative arm of Congress, to look into California’s spiraling prices to see whether the state’s refineries are using “routine maintenance” as an excuse to shut down operations and keep prices high.
She said the number of idle refineries is further crimping the state’s tight supply of gasoline and is reminiscent of the scenario that developed during the state’s 2000-01 electricity crisis.
Consumer groups already have accused the oil companies of gouging customers to pad profits, but gasoline prices are not regulated, and previous investigations have failed to prove any illegal activity.
Felmy said there was “no basis” for Boxer’s suspicions about California refineries. He said refineries on the West Coast were running at 85% capacity, compared with 80% during the same period a year ago.
California motorists aren’t the only ones seeing a bump at the pump. Data released Thursday by the Energy Department show that gas prices are traveling into record territory across the country and are boosting profits for refiners and retailers.
“Refiner margins, which were slim this past summer, are expected to recover over the next two driving seasons,” according to a monthly outlook report produced by the Energy Information Administration, the statistical arm of the Energy Department.
The U.S. refiner margin was 31.8 cents a gallon and the retailer margin 11.1 cents in February, when the price of self-serve regular gasoline averaged $1.615 nationwide, the EIA said. A year ago, the refiner margin was 18.9 cents a gallon, the retailer margin was 10.4 cents and the average price of self-serve regular gasoline was $1.114.
Wall Street analysts are predicting healthy first-quarter earnings increases for oil companies.
Companies can profit not only when prices increase, but also when crude oil prices fall and retail prices do not immediately decline -- a common occurrence after spikes at the pump. EIA studies have found that gasoline prices usually rise faster than they fall, a phenomenon dubbed “price asymmetry” or “downward sticky” prices.
Motorists should expect no relief from high fuel prices for months, the EIA said.
U.S. regular gasoline is expected to average $1.727 a gallon this month, breaking the record average U.S. price of $1.71 set in May 2001. The U.S. average is predicted to peak in April at $1.759, the EIA said.
Although drivers are howling about recent increases, the EIA pointed out that prices were higher in the past when inflation is taken into account. The highest inflation-adjusted average U.S. price was nearly $2.90 a gallon set in March 1981, the EIA said.
