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Thread: Another "Take" on the Gasoline Crisis

  1. #1
    Essex502
    Gasoline Prices: a Case of Cheating, Not Competing Sound familiar? Think back to the electricity crisis.
    COMMENTARY
    By Jamie Court and Tim Hamilton
    If the recent sticker shock at the gasoline pump feels familiar, that's because it is the same old story that led California's electricity market to become the embarrassment of the nation.
    California Atty. Gen. Bill Lockyer is convening today in Los Angeles a panel of industry experts who have blamed the run-up on OPEC crude oil prices, environmentally sensitive fuel and free-market pressures. But the problem is as simple as California's electricity crisis turned out to be: A few giant energy corporations have manipulated supply to keep profits high.
    During the blackouts, electricity barons like Ken Lay blamed the crisis on overuse and market restraints, but state investigations later found the real problem was that unregulated electricity plants were strategically shut down to reduce supply and make prices skyrocket.
    Similarly, California's special gasoline formulation — as required by the federal government under Clean Air rules — has been made to appear rare by the small number of refiners that make the special mix and have gradually closed refining plants.
    The recent 20-cent-per-gallon increase in California — compared with just a 5-cent increase nationally — is the result of cheating rather than competing by seven refiners that control more than 99% of the state's gasoline supply.
    The tip-off is that the increased costs to motorists are turning out to be pure profit for Big Oil, not reflective of real production costs.
    The California Energy Commission estimated recently that the 41-cent average increase in retail gasoline prices in January and February would reflect a 40% rise in refinery profit margins. This keeps with the pattern of huge quarterly profits for California refiners after every price surge during the last three years.
    By strategically cutting the number of state refineries almost by half since deregulation of gasoline in 1981, even while the state's population has exploded, the refiners have created conditions under which price spikes occur regularly. Inventories are kept low so that when there is a problem at a refinery — such as a fire — the market anticipates a shortage and sends the speculative price of gasoline sky-high. Refiners make a killing because it doesn't cost them any more to produce the gasoline, which they can charge more for.
    Internal industry memos recently released by Sen. Ron Wyden (D-Ore.) show how big West Coast refiners drive out independent refiners to erase competition. The 1996 memorandums from Mobil referred to the successful strategies to keep smaller refiner Powerine from reopening its California refinery. One was promoting tough California regulations that Mobil believed Powerine couldn't comply with. A plan that could be used in the event Powerine did open the refinery was " … buying all their [available fuel] and marketing it ourselves" to ensure that the lower-priced fuel didn't get to market. In the memo, Mobil acknowledged that the strategy of buying competitors' gas to keep it off the market had been used in the previous year, resulting in significantly increased prices.
    A major problem Californians now face is that Shell recently announced it would close its Bakersfield refinery this year. The Bakersfield plant provides 2% of California's total gasoline supply and 6% of its diesel needs.
    Reflecting the state of the oil industry, Shell reportedly did not even seek a buyer for the refinery. Wall Street refers to such a closure as "refinery heaven" because it would result in higher prices at Shell's remaining refineries and encourage greater price increases that would benefit every refinery in the market. Instead of refineries competing with one another by creating more supply, they all work together to restrict supply so that they all profit wildly.
    Three-dollar-a-gallon gasoline will be coming this summer if Shell's refinery closes. That's why the attorney general and the Legislature must insist that Shell's 70-year-old Bakersfield refinery be kept open. A phone call from Gov. Arnold Schwarzenegger could allay an even bigger run-up at the pump. If the political pressure is not successful, Lockyer should be prepared to bring suit to stop Shell.
    In California's car culture, gasoline is a necessity of life, and it is becoming increasingly unaffordable. There is ample cause to re-regulate gasoline. In the long term, perhaps only such a move will break the hold of California refiners.
    Until our political leaders start talking tough about greater public control over the flow of gasoline, however, the in-state refining oligopoly will continue to extract even greater prices.
    --------------------------------------------------------------------------------
    Jamie Court is author of "Corporateering: How Corporate Power Steals Your Personal Freedom" (J.P. Tarcher, 2003). Tim Hamilton is a petroleum industry consultant.
    REPRINTED without permission of the L.A. TIMES
    Believe it or not...it is up to YOU!

  2. #2
    summerlove
    As usual, we get screwed...thanks for the article. It's so damn frustrating that the big corporate oil companies can get away with price manipulation and what appears to be a violation of U.S. anti-trust laws.
    What is really frustrating is that when I fill up most pumps stop at $50, it takes about $70 to fill up my tank now and that's about 2x/week! OUCH!

  3. #3
    OGShocker
    Originally posted by summerlove
    As usual, we get screwed...thanks for the article. It's so damn frustrating that the big corporate oil companies can get away with price manipulation and what appears to be a violation of U.S. anti-trust laws.
    I say we nationalize "big oil"..... They are only in business for profit and to kill the planet we all live on. KILL ALL PROFIT MAKERS! Let government run everything! They do such a good job every where else.
    Why won't the state/feds reduce the TAXES on oil.

  4. #4
    Essex502
    It's not so much the issue of nationalizing the companies but to let the independents have a level playing field. The fraudulent practices such as Unocal being allowed a patent of the blend that just happens to be the specified blend allowed in the state for low emmisions gasoline when several companies worked on the process is just one example. Allowing consolidation of an already consolidated industry is another.
    Who remembers Gulf Oil? Who owns it now?
    Arco? Who owns it now?
    Thrifty? Who owns it now?

  5. #5
    GBLASER
    Why is it that when I go to my place at the river in Blythe, regular averages about 2.20 a gal but I can drive 2 miles over the bridge to Arizona and get reg. for 1.82 We are getting totally screwed.....

  6. #6
    HighRoller
    "Crisis", yeah right. The oil companies have "dog" syndrome. Their just like a dog who licks his nuts...they raise prices for one reason. Because they CAN! Ever notice how no probe into gas price fixing ever gets past committee? The oil companies have every major political representative, not to mention both parties on their "payroll". Everytime an investigation is started, it is squelched just as quickly. I don't mind anyone making money, but for the oil companies to cut down production and tell us high prices are caused by a "shortage" is insulting. The high prices are caused by their greed and the fact that they have a monopoly. I can imagine the CEO's of these companies betting each other how high they can jack up prices. AHoles... But what goes around comes around. They'll get theirs someday and there won't be a single solitary soul in the country who will show them an iota of sympathy.

  7. #7
    058
    Why would the state govt. want lower gas prices? They reap the same windfall profits the oil cos. do. General sales tax of 8+% on 2.50/gal is alot more than 8+% on 1.50/gallon and thats on the total after federal and state fuel tax. A tax on a tax is suppose to be unconstitional. The metropolitan areas also win because more people will ride mass transit witch here in the Bay Area is a dismal failure. These guys are looking to get everyone off the roads and onto the tracks of BART, Caltrain and ACE. With the regional bond measure that the morons here just passed we now will be spending another 2 billion dollars on bike and hiking trails, more ferries, more trains and trollies... oh, yeah and about 230 million on roads, bridges and overpasses. :yuk:

  8. #8
    gnarley
    Hey 058, I hear ya, what a friggin joke in the bay area and the transit system! It's real interesting there are a lot of folks that want to elect a Republican and would like to see Bush back in office but complain about the gas prices??? It seems like real confusion, a Texas Republican oilman as president and people expect gas prices to drop?
    The government is only going to help the oil companies make huge profits because when they do the Government also reaps huge rewards in increased tax revenue. Why would they stop it? And that double taxation thing is a whole fu*kin joke by itself but how would you stop it? More ferries??? Great, where they going to take them to and how much longer is it going to take if you live in the burbs and then need to take a ferry. Some people just have a severe case of cranial rectosis and canÂ’t think due to the lack of oxygen.
    Then on that same note it seems like people would like to see reregulation of fuel prices but don't want to elect a more controlling government like the Democrats who would probably try to reregulate.
    SomethingÂ’s gota give and it just seems the Republicans screw us worse than the Dem's
    Something needs to be done and the Republicans sure don't seem to interested in doing it and the State of California needs to get onto the same fuel mix as the rest of the country, until then our prices will never be fair.
    I think that as long as Bush is in office you might as well just bend over and grab your ankles and spell run 3 times fast, because with him in office we're getting screwed.

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