2-17-09 by dugan
The motto of the oil industry is: "If you can’t haul in profit on the front end, hit the back end." OK, I just made that up . But California gasoline prices are averaging over $2.30 a gallon today on the AAA fuel gauge, even with crude oil between between $34 and $35 a barrel (about 80 cents a gallon). That means the cost of the oil going into the $2.30 gallon is just a little over one-third of the total price–when it should be 60% or more. That means refiners are are raking it in, with an unjustifiable subsidy coming out of drivers’ pockets.
A ballpark estimate, based on California Energy Commission figures for weeks past, is that refiners’ share of the California gasoline dollar is about 80 cents by now, the same as their cost for crude oil. That is way out of whack, and just another reason to lay a much tougher regulatory hand on refiners.
Oil companies say they have to make money while they can, because sometimes they operate in the red. That "sometimes" has come to mean "very rarely," now that refiners are much more skilled at shutting down production to keep prices rising. If they were regulated like electric utility companies, keeping profits within a fairly narrow range, they’d never lose money–and true, the bottom on gasoline prices might never plunge as far as in some past crashes. But refineries would also never get to keep a third or more of your gasoline dollar. I’m betting it’s a tradeoff most drivers would be happy to accept.
Anyone who thinks that a small cut in production can’t produce a hefty price boost can look at California’s Central Valley, around Bakersfield, where the medium-sized refinery owned by the bankrupt Flying J chain remains shut down. It made only 2% of the state’s total gasoline, but its loss has pushed regional pump prices to $2.40, higher than LA or even San Francisco.