Drivers on the West Coast, especially California, have been dealing with high gasoline prices for most of this year. Gas prices have always been high on the West Coast, but this year has been unusually tough on drivers.
California drivers are accustomed to paying more for gasoline than the rest of the nation, but the situation moved to the extreme in May when drivers were paying more than 50 cents per gallon above the national average.
The primary reasons given for the higher prices in May were reports that four refineries had shut down for maintenance. With refineries down, it makes sense that gasoline inventories would come under pressure, leading to higher gasoline prices.
The problem is that gasoline inventories actually rose in May, instead of falling. How can it be that inventories actually rose during a time when four refineries were shut down? The answer seems pretty clear… the refineries were not shut down as was reported.
A new report suggests that a Royal Dutch Shell refinery that was supposedly down for two weeks was actually producing gas for half that time. In addition, Chevron (CVX) reportedly never shut down a refinery in Richmond, Calif. that was supposedly offline for two weeks.
California is a unique situation because there are no pipelines bringing in oil from producers in the Gulf of Mexico, and the state has unique gasoline formation requirements put in place to protect the environment. As a result, it is at the mercy of about seven major companies that control its supply.
Because of its unique nature, California is at a greater risk of having its prices controlled by producers.
What we are seeing is just how easy it is for gasoline producers to take advantage of the situation. Any supply concerns will spook the market and send prices higher, and because of this there needs to be a better way to police the market to make sure consumers aren't ripped off.
Earlier this year, the Oil and Gas Price Fraud Working Group was established to identify civil or criminal violation in the gas market, but its effectiveness is still in question.
Democratic Senator Maria Cantwell from Washington announced plans to send a letter to the Justice Department requesting a refinery-by-refinery investigation into pricing during this year’s spikes.
The real question is why it took a researcher from Oregon to connect the dots, when all of the same information was available to regulators.
Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va. His articles typically cover big-picture events and forecasting what impact they will have on the stock market. In addition to writing for Fresh Brewed Media, Michael also wrote for AOL's BloggingStocks for three years, focusing most of his attention on the energy and technology sectors.