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Consumer Watchdog: Historic gap in gas prices in California

Staff writer |
Consumer Watchdog testified Tuesday that the gap between the retail price paid at the California gas pump and the wholesale price of gas traded within the oil industry has never been greater – signaling gouging of the consumer.

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Consumer Watchdog presented evidence before the California Energy Commission's Petroleum Market Advisory Committee (PMAC) that there's never been a greater gap between wholesale and retail gasoline prices in the state of California as during August and September, as well as through the Spring of 2015.

Analysis of state and industry data shows that California's oil traders are buying finished gasoline at $1.20 less per gallon than they're selling it at the pump, which is an unprecedented margin. Typically, the wholesale price has averaged 77 cents per gallon since 2000.

"All levels of the oil industry are raking it in while consumers are shelling it out to the tune of $6 billion more than US drivers spent since February," said Jamie Court, president of Consumer Watchdog.

"The lack of competition in the market is the result of four refiners controlling 78% of the state's supply and these companies using their market power to drive up prices and drive away competition."

The historic retail/wholesale gap reflects a new predatory pricing strategy by California's oil refiners, who are able to set the retail price through their contractual power over 85% of California's gas stations, their branded stations.

In 2015 there was an unprecedented gap between branded and unbranded wholesale prices at the "rack."

This means oil refiners were charging the small independent wholesale market 30 to 35 cents less for gasoline, the competitive prices, and keeping gasoline prices artificially high at their branded stations, which represent the lion share of the market.

This is an unprecedented tactic by oil refiners in 2015, previously the branded-unbranded gap had averaged only 4 cents since 2000.

Unbranded station margins are higher than ever before because the independent stations are paying closer to the true price of gasoline, but only having to undercut branded station prices by a few pennies, thus are able to sustain higher profits. Since the sector is only 15% of the market, it has a negligible impact on retail prices.

An analysis by Consumer Watchdog shows that Tesoro and Valero's profits soared as the gaps between branded and unbranded stations soared during the Spring and Summer.

An analysis of profit reports and state data showed that Valero and Tesoro both saw unprecedented profit bumps as inventories and production fell as well – showing the incentive to keep the state running on empty.

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