LOS ANGELES, Sept. 27, 2023 /PRNewswire/ -- As new data from the Energy Information Administration (EIA) shows Californians pay $1.86 more per gallon than US drivers for gasoline, the state's new oil market monitor has issued a letter pointing a finger at refinery outages and potential manipulation in the state's spot market.
Consumer Watchdog said the analysis makes the case for Governor Newsom vetoing a last minute bill weakening the state's power to regulate refinery maintenance, SB 842, and for new legislation allowing the state to regulate gasoline inventory and place the spot market on a public commodities exchange.
The average price for California gasoline was $5.69 per gallon on 9/25 and the average US price was $3.83, according to the EIA.
"The delta between US gas prices and California gas prices should be no more than 80 cents per gallon but is typically $1.10," said Jamie Court, president of Consumer Watchdog. "When the gap between US and California pump prices are $1.50 or more per gallon something is wrong. The new gasoline market monitor has pointed to problems with refinery maintenance and inventory management and a questionable transaction in the spot market that artificially drove up the price at the pump. It's good to have a cop on the beat, but now we need him to make some arrests."
"That will require Governor Newsom to veto SB 842, the eleventh-hour bill by Senator Steve Bradford that weakens the state's ability to stop unnecessary refinery maintenance. California also needs to step up its schedule for implementing a price gouging penalty. Refinery margins reported by refiners to the state have doubled since January from 66 cents to $1.20 in June."
The price we pay for gasoline is tied by contract to the price of trades between refiners and traders on the "spot market," a small wholesale market. One trade at an artificially inflated price can drive up the price of gasoline at every gasoline station in the state. Now, the new market monitor believes he has found one such questionable transaction, which raised the price of gasoline by 50 cents over night.
The California attorney general's office is suing traders SK Energy and Vitol for allegedly manipulating the spot market after Exxon's Torrance refinery went down in 2015. The companies are accused, among other things, of making trades in which no gasoline changed hands solely to drive up the price of the fuel.
This was possible because no public ledger of trades on the gasoline spot market existed – only voluntary reports to the Oil Price Information Service, an oil industry news service owned by Rupert Murdoch. SBx1 2 required all spot market trades be reported to the Energy Commission, but not be made public. For the purposes of gasoline pricing, the voluntarily-reported OPIS index still sets the price at gas stations.
"Should the price of California gasoline be set on a public commodities exchange like the Chicago Mercantile Exchange or by a news service owned by the Murdochs?" asked Court.
A single trade can set the price of all retail gasoline in the state for days or weeks. When the spot price is high, there is no incentive to report a trade to OPIS. Robert McCullough, an economist who has studied energy markets for decades, testified before a state Senate committee recently that at the height of the spikes last fall, the spot price for gasoline didn't change for two weeks. If that had happened with the Dow, he wondered, wouldn't someone have noticed?
Research by Greg Karras of Community Energy reSource shows the pattern of oil refiners exporting gasoline as inventories draw down to unprecedented levels continued this summer, driving the gasoline price spike. At the same time, the Energy Commission data under SB 1322 shows the refining margins doubling to $1.20 this summer.
"California's legislature should watch these gas price signals and move next session to make the spot market a public traded market on an actual commodities exchange," said Court. "In addition, the legislature should give the state the authority to stop exports when refiners don't keep sufficient inventories, which the market monitor reports is a driver of the current price spike. The only way to get California gas prices under control is with more tough love of giving the state control over exports and inventory, retaining control over refinery maintenance schedules and a completely transparent spot market."
SOURCE Consumer Watchdog
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