Gas prices reflect refinery gouging
By: CHARLES LANGLEY - for the North County Times | ∞
Big Oil's earnings statements read more like a confession than a profit report.
As North County's gas prices edge toward $3.50 a gallon, consumers should know that gasoline now costs 11 cents more than it did last year when oil was selling for $11 more per barrel. For example, on Thursday, the North County Times reported that the average price of gasoline was $3.41 a gallon. Meanwhile, the price of oil was $63 a barrel. On the same day last year, the price of oil was $74 a barrel, and gasoline cost just $3.30 a gallon (source: U.S. Department of Energy).
Something is terribly wrong when oil prices drop and the cost of gas goes up. Big Oil says it is all about "supply and demand," but the ugly truth is that North County residents are getting gouged deeply. Here's why: An $11 decrease in the cost of oil should mean a price cut of 26 cents from last year's price of $3.30 a gallon. The industry says it "struggles" to keep up with demand for gasoline, but according to the California State Board of Equalization, gasoline demand in the last half of 2006 was 1 percent lower even though there are more drivers on the road. While the report does show a 1 percent bump in gasoline consumption during January 2007, the cost of gasoline in North County averaged $2.53 a gallon ---- almost a dollar less than it does now.
What has happened is that the oil companies have shifted their profits centers from the "upstream" sector (oil and drilling) to the "downstream," which is refining. In the meantime, retailers are limited to an average profit of about a nickel a gallon.
Last week, Big Oil's first-quarter profit reports came rolling in with more bad news for consumers. On April 26, Exxon/Mobil reported that even though it produced less product than last year, it earned profits of 10 percent on unusually high refinery margins (source: MarketWatch) and that the margins were so high that the company "overcame lower crude oil and natural gas prices" (source: Associated Press).
The following day, April 27, Chevron joined the obscene profit bandwagon by announcing that it earned first-quarter profits of 18 percent, much of it on increased refining margins, even though the company produced less gasoline than last year (source: Associated Press, International Herald-Tribune). Meanwhile, Valero announced that it made the highest first-quarter profits in the company's history. Valero Chairman Bill Klesse said longer downtimes for planned refinery maintenance helped create the shortages that reaped record-shattering profits (source: San Antonio Business Journal). And on Thursday, Shell announced that despite "unusually low seasonal gas demand," that "better refining margins, particularly in the U.S. West Coast," drove profits sharply higher (source: MarketWatch.)
Bottom line: These aren't "profit reports," they are confessions.
Exxon didn't "overcome" low oil prices, as the reports suggest. It gouged its way to higher profits due to an almost complete lack of competition at the refinery level. And so did Chevron, Shell and Valero. They did it by restricting supply, panicking the markets, and intentionally underproducing gasoline.
Charles Langley is a gasoline analyst for UCAN, the San Diego-based Utility Consumers' Action Network. He also collects gas-price data for the North County Times. He edited UCAN's free 32-page guide, the "Guzzler Buster: 127 Secrets to Squeezing More Miles From Each Gallon." UCAN's "Guzzler Buster" is available free of charge to San Diego County residents who visit the UCAN Web site at www.ucan.org.
victor wrote on May 5, 2007 11:02 PM:the consumer is being conned
WE GET WHAT WE DESERVE wrote on May 6, 2007 11:12 AM:What is Congressman Darryl Issa doing about this crisis? Anything?
Reardon wrote on May 6, 2007 1:36 PM:I just returned from the MOST remote part of the US -- Kauai Island of Hawaii. Gasoline there is $0.20-$0.30 CHEAPER than in San Diego! Why? Because Dan Diegans will pay more, and NO businessman wants to take LESS for his product than he can get. When the people say "too much" the oil companies will take less -- not one minute before. If you think that furniture stores, computer stores, and flower shops do anything differently, you are smoking Maui Wowie! If you think YOU would do any differently, then we ALL want to know the brand YOU are smoking?
Andy wrote on May 6, 2007 3:48 PM:Question, should oil companies that bear the risk of development make the profits or should the oil traders on the mercantile exchanges make the profits?
Bill wrote on May 6, 2007 4:59 PM:Price controls and a ban on futures trading in energy commodities are what is needed. A change at the White house would not hurt either!
DMann wrote on May 6, 2007 10:12 PM:They control pricing through production. Which of course they control. Why do you think no new refinries have been built in over 30 yrs.
Reardon wrote on May 6, 2007 10:54 PM:Bill -- remember the LONG gas lines the last time we tried price controls? (Jimmy Carter remembers...)
Oceanside Resident wrote on May 7, 2007 8:44 AM:Why are we making the oil companies the villian here? I wonder if the oil companies have tried to build any new refineries with all of the new environmental restrictions. We ourselves are causing these problems and we need to finally admit it. How about OPEC and the middle eastern countries where we get our crude oil? This resident is tired of supporting those countries and the U.S. should be using our own oil resources. ANWR= Alaska National Wildlife Refuge, it is just a name and should be changed to "Alaskan National Oil Resource".
CR wrote on May 7, 2007 8:50 AM:Don't expect Congress to do anything--oil lobbyists are the biggest contributors to their campaigns by far! This is an example of where the economy doesn't work--collusion and market manipulation on a criminal level to make obscene profits for the industry. The executives should be arrested, and refineries taken over by the government since they can't be responsibly run by these pirates. Thank Jimmy Carter for removing price controls on big oil--this day has been coming for a long time. Maybe terrorists will do us a favor and hit our oil industry. I would rather see it shut down than continue to pay for the billions of PROFITS each QUARTER that they are reaping now. They are too stupid to see that they will eventually kill off our whole economy.
Get out of your SUV wrote on May 7, 2007 7:32 PM:Quit your whining, the world is changing, you no longer make the rules, free market is hard at work. I bet if you sold your house for 3 times what you paid you would not be crying "gouging". Save energy people, you have the power!!!!
Alaska Resident wrote on May 8, 2007 11:26 AM:What part of Alaska National Wildlife REFUGE (emphasis) do you not understand?
Glad to be Ex-Californian wrote on May 8, 2007 11:36 AM:To Oceanside Resident - What part of the word "Refuge" do you not understand, in Alaska National Wildlife Refuge?
Michael D wrote on May 8, 2007 2:25 PM:Gee whiz; Nancy Pelosi, Harry Reid and the rest of the Demogogue party promised us lower gasoline prices if they were voted into office, but prices have just gone higher and higher and higher while the new Congress tries to distract us with childish name calling and pointless investigations. I guess basic economics and market forces have nothing to do with this pricing structure. You know, things like rapidly increasing demand in China & India where 2.3 billion consumers are building more oil consuming factories and earning more money with which to buy more autos and other oil burning gadgets. And of course there are us pampered Americans driving 1 person per car to purchase more X Boxes and other mindless gadgets that run on oil burning electricity. On the other side of the equation, we have the so called "environmental" regulations that reduce our ability to produce more supplies and be energy independent. WAKE UP! It ain't "Big Oil", it's big consumers, big enviro-wackos, and big idiot politicians. We do it to ourselves everytime we turn a light on, drive to the store, or pat ourselves on the back for voting "green". And if Chicken-Little trust-fund baby hypocrites like Al Gore have their way, the price of gasoline will go up another 50 cents or more per gallon to pay for their global warming con and the jet fuel that gets them around the country so they can condescend to the rest of us about how we need to take the bus. If you don't like the price of gasoline or oil, then stop electing idiots, stop looking for big government to save you, and start engaging in some genuine conservation on your own.
BrianB wrote on May 9, 2007 10:29 PM:Where are the Molly Maguires when we need them? They put a pretty swift end to the abuse by energy companies (coal) in the 19th Century (for awhile anyways). If our government won't protect us from corporate corruption then perhaps it is time to excercize our Constitutional Rights and do it ourselves?
Susan wrote on May 12, 2007 8:06 AM:As long as politicans are basically bought and paid for by the oil companies due to the high cost of running for office, we will have high gas prices and gouging will take place. Anyone watch the program NOW last night. It seems that our President, who like many elected officals own large amounts of oil stock, is allowing the oil companies to use creative bookkeeping as royalties collected have decreased two thirds. It just another example of selectively enforcing our laws for the benefit of the wealthy while they squeeze the last dime they can out of us.
First name only. Comments including last names, contact addresses, e-mail addresses or phone numbers will be deleted. Attempts to misrepresent your identity or impersonate any person will not be approved. All comments are screened before they appear online, so please keep them brief. Comments reflect the views of those commenting and not necessarily those of the North County Times or its staff writers. Click here to view additional comment policies.
Today's Stories
Advertisement


