Spike in California Gasoline Prices Had External Causes, Panel Says
How can a hurricane half a continent away send California gasoline prices to all-time highs?
According to a new state report, it takes a strange combination of factors, and none has anything to do with the price of oil, the main culprit in most gasoline price spikes.
Price-gouging by retail gasoline stations wasn’t part of the picture either, the California Energy Commission said in a report released Friday.
In fact, the record gasoline prices that hit California in late August and early September were caused primarily by local wholesale trading that mimicked the soaring post-hurricane fuel prices in New York. Other causes included an increase in gasoline exports from California to Arizona, in-state refinery problems and the diversion of inbound West Coast fuel cargo to the Gulf Coast, where the double whammy of hurricanes Katrina and Rita damaged refineries and triggered fuel shortages.
Those were the top reasons the commission cited in its review of this year’s sharp increase in retail gasoline prices statewide, peaking Sept. 5 at a weekly average price of $3.056 for a gallon of self-serve regular. Prices since then have fallen steadily.
“There are many factors at work that don’t make it easy for us to point to any single factor,” said Joseph Desmond, chairman of the energy commission. But he added, “it wasn’t clear to us in the past how closely California prices are moving now in correlation” with the New York Mercantile Exchange.
The commission launched its study in early September in response to complaints of possible gouging at gas stations, but the probe “didn’t find at the retail level any widespread or lengthy pattern of retail price increases,” Desmond said.
Michael Shames, executive director of the Utility Consumers’ Action Network, called the study flawed.
“This rebuts an argument that was never made ... that the retailers were exploiting the market,” he said. The price spike, Shames contended, was directed by the refiners, which set the price to their gasoline dealers, and “was simply basic opportunistic pricing by an industry that fears no competition and therefore can set the price at will.”
California’s gasoline market is supplied by a handful of refiners that charge gasoline stations different wholesale prices based on a patchwork of regional price zones that have little to do with cost.
But the companies have denied that they exert any control over retail prices.
The report focused primarily on an abrupt surge that hit nationwide in the days immediately following Katrina’s Aug. 29 rampage through Louisiana and surrounding states. Traders on the Nymex, where gasoline is regularly bought and sold in huge quantities, sent the price of regular gasoline soaring.
Prices on California’s unregulated wholesale markets in Los Angeles and San Francisco immediately followed troubles in the Gulf because those California spot markets have become increasingly linked in recent years to the Nymex futures market. California’s wholesale gasoline price jumped 64 cents a gallon in the last week of August, according to the report.
Consumer groups cried foul at the time, arguing that the elevated pump prices that followed the hurricane weren’t justified because California’s gasoline supplies were adequate, fuel inventories were steady and the cost of the Alaskan North Slope crude oil used by California refiners had not risen. What’s more, because California requires special cleaner-burning gasoline, the state’s fuel needs are fulfilled almost exclusively by in-state refineries that were unaffected by the outages along the Gulf Coast.
The commission made those same points, but concluded that the temporary fuel shortfalls elsewhere in the nation drove prices higher everywhere.
“There was no immediate production, supply or inventory constraint within California,” the report said. “The spike in the Nymex gasoline market appears to have raised California gasoline prices.”
Industry consultant David Hackett said that was normal in what has become a worldwide fuel market.
“When the Nymex starts to run up, the first thing someone says who has gas in a storage tank in California is, ‘Do I want to sell it in California or do I want to sell it in the Gulf Coast?’ ” said Hackett, president of Irvine-based Stillwater Associates. Oil companies then move fuel where the price is highest, he said.
