The days when oil companies could easily deny they’ve gouged California motorists through much of this year should have ended with the second-quarter financial reports of Valero Energy Corp. and Tesoro Corp., which together control about 40 percent of the California gasoline market.
But their denials won’t end despite the humongous windfall financial gains they and other gasoline refiners reaped from a spring of obviously excessive gasoline prices. When the same companies unveil their third-quarter financial reports, the refiners’ take will likely be even higher.
Valero saw California gasoline profits rise from $24 million last year to $294 million in the April-through-June period this year. Per-barrel profits rose from 99 cents in 2014 to $11.23 this year.
Tesoro, meanwhile, reported a record profit of $668 million in the same time period, far outstripping its previous record of $415 million, set in 2007. Tesoro gasoline is sold under brand names like Arco, Shell and USA.
Valero and Tesoro are the only oil companies specifically breaking out California refining profits in their corporate reports. Chevron, with large refineries in Richmond and El Segundo, does not distinguish California profits from other operations. But 54 percent of that firm’s refining is done here, and its company-wide refining profits rose $214 million in this year’s second quarter, the lion’s share no doubt coming from the pockets of California drivers.
And yet, the oil industry’s regional umbrella organization, the Western States Petroleum Assn., continues to insist that oil companies did nothing out of the ordinary to create those record profits.
It was all because of supply and demand issues beyond the control of the oil companies, insisted WSPA President Catherine Reheis-Boyd, in a response to a previous column alleging gas price gouging. She did not dispute that refiners exported gasoline to Mexico and Central and South America sufficient to supply California for three full days, or 10 percent of a month’s supply for the entire state, just before prices rose by more than $1 per gallon in many places on and immediately after July 1.
In a blog post, Reheis-Boyd called those exports a “tiny volume” of fuel.
And Valero Vice President Bill Day claimed in a telephone interview his company made more money because it made more gasoline – 88 percent more this spring than last. This left unexplained the higher prices and an 1,150 percent profit increase. Said Day, “Ask the dealers why prices were higher.” Three station owners told this column they charged more because Valero raised wholesale prices.
Profits from the July price spike won’t appear in company reports until after Oct. 1; the second-quarter results reflecting earlier hikes imposed on motorists.
Oil company executives admit the supply shortages to which they frequently expose California are highly profitable. In a conference call with stockholders, Chevron investor relations general manager Frank Mount said “Tight product supply, primarily on the West Coast, boosted refining and marketing margins and increased earnings by $165 million between quarters.”
Chevron helped create that tight supply by shipping more than 400,000 barrels of California-refined gasoline to other countries just before the latest price spike. If tight supply means huge new profits, why would companies increase their stockpiles?
All this angers the Silicon Valley-based billionaire Tom Steyer, who has funded several state ballot measures. In a press conference, Steyer asked that state legislators pass new laws forcing disclosure of oil refiners’ California profits. He would also require advance notice of planned outages and increased penalties for illegally conspiring to raise prices. “Oil refiners are getting rich at our expense,” Steyer said.
If lawmakers don’t act by mid-September, he said, he might next year fund and run a ballot initiative imposing those rules, working with the Consumer Watchdog advocacy group. “Lack of transparency keeps prices artificially high,” Steyer added. “Normally, when profits and margins increase this much, a competitor steps in with lower prices. Why doesn’t the California gasoline market operate that way?”
Whether by coincidence or not, gasoline prices dropped a bit the day of Steyer’s remarks. WSPA executives offered no explanation.
Steyer’s comments suggest the California gas price gouging story is far from over, especially since he doesn’t deny he might run for governor in 2018. A highly visible record of fighting the oil companies could give him a strong campaign calling card.