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“I don’t think gasoline prices are so inconsequential that you couldn’t have the Department of Justice going refinery to refinery and make sure these markets are properly policed,” Cantwell said. “In electricity, at least we know that the FERC is a policeman on the beat.”
The price spikes in May affected the states of California, Oregon and Washington, while October’s price spike was felt mainly in California. May’s West Coast spike was partly blamed on a Feb. 18 fire at BP’s Cherry Point refinery in Washington. October’s California spike was explained as partly a market reaction to an Aug. 6 fire at Chevron’s Richmond, Calif., refinery. Emissions data suggests the refinery never ceased operation.
What’s odd about those spikes is that normally prices shoot up during events that lead to supply shortages. But the spikes came many weeks after the events at the refinery, and McCullough’s research suggests that contrary to a shortage, supply was growing.
The Western States Petroleum Association speaks for the region’s refiners and declined to comment on the specifics of McCullough’s report until actually seeing the data when presented Thursday. McCullough declined to share it with the association on the grounds that refiners have the same data he has since it was shared with environmental regulators.
“People have made all manners of claims and this industry has been investigated dozens of times in the past 20 years, and each time the changes in prices have been found to be because of the dynamics of supply and demand, and not the result of any market manipulation or anti-competitive conduct,” said Tupper Hull, spokesman for the association.
Part of the reason why, countered Cantwell, is that until just recently federal regulators have lacked the power to effectively punish refiners for failures to properly report data. The financial regulation overhaul in 2010 empowered the Federal Trade Commission to move more aggressively, and it has been investigating refiners for much of this year.
The West Coast is isolated from the national gasoline market, and California even more so.
There are no pipelines bringing oil to the West Coast from producers in the Gulf of Mexico. And California is further separated from the rest of the nation by its unique gasoline formulation requirements to protect the environment.
This means that in California, the nation’s most populous state, seven major players control most of the supply. They are vertically integrated, refining oil into gasoline and getting involved in the retailing of gasoline in the wholesale market. That system, McCullough said in an interview, lends itself to a market concentration that allows producers to subtly coordinate their prices.
“This is not perfect competition,” McCullough said in an interview.
McCullough’s research is an approximation because production data is incomplete and lags in time. Instead, using public information laws, he focused on data sent to air-quality regulators from continuous emission monitors installed in refineries. Some of this massive data is still provided on paper, not electronically.
“It’s a very poor way to check for market power to have someone go through thousands of pages of environmental reports to look for inconsistencies,” he said.
McCullough suggested it all highlights the need for real reporting of price information to regulators as is done in electricity markets.
“It’s a powerful tool, because if you are, say, the magnesium smelter outside of Salt Lake City, and you think you’re getting screwed, you can get on the web and see what the real prices were,” he said. “Imagine if we ran grocery stores like we run the oil business. They’d look you over carefully and determine what the price of artichokes is.”
