HomestoryOil Companies › How Oil Refiners’ Profits Are Surging With Gas Price Spikes

News Story

How Oil Refiners’ Profits Are Surging With Gas Price Spikes

PASADENA STAR-NEWS
http://www.pasadenastarnews.com/business/20150505/how-oil-refiners-profits-are-surging-with-gas-price-spikes

A new report from Consumer Watchdog confirms what Southland motorists have long suspected — oil refiners are drawing deep profits from gasoline price spikes.

“Refining Profits: How Californians Get Fleeced at the Pump” reviews 10 years of publicly available profit data. First quarter profit reports from the state’s oil refiners show that recent spikes in gas prices resulted in big profits for two of the state’s major oil refiners that specifically report their California refining data.

The price hikes have been attributed largely to in-state refinery problems.

Valero, the state’s fourth-largest refiner, nearly quadrupled its typical quarterly profits in the first quarter of 2015 as gasoline prices began to spike. Over the past five years, the average quarterly California refinery profit for Valero was $25 million. But in the first quarter of this year the company’s profit soared to $82 million, the report said.

Valero’s average quarterly income over the past 10 years was $100 million, but during seven quarters with gasoline price spikes the company made an average profit of $222 million.

Tesoro shut down its Martinez refinery in early February and had to buy gas on the spot market to fulfill contracts, but it still made a first quarter profit of $119 million.

Tesoro’s average quarterly income over the past decade was $142 million. During quarters with price spikes that rose to an average of $231 million.

“California drivers are getting gouged, and California refineries are getting richer every time a refinery goes down and gasoline prices up,” Consumer Watchdog President Jamie Court said. “The proof’s in the oil companies’ own profit reports.”

The report notes that Chevron General Manager Jeff Gustavson admitted why his company’s overall refining profits for the first quarter of 2015 doubled from a year earlier.

“Margins increased earnings by $435 million, driven by unplanned industry downtime and tight product supply on the U.S. West Coast,” he said in a recent conference call with investors.

Court said California refineries are purposely keeping inventories tight so that any disruption will drive prices up. And Southern California gas prices have skyrocketed.

On Tuesday the average price for a gallon of regular in Los Angeles County was $3.83 per gallon. That was up 31 cents from a week ago and up 63 cents from a month earlier, according to GasBuddy.com.

San Bernardino County has seen similar spikes. The average price for regular there was $3.75 per gallon on Tuesday, up 58 cents from a month ago.

“I know the refineries are making a huge profit and they have the power to control it,” said Thomas Davis, 50, of Pasadena. “As a consumer you have no choice because you have to drive your car. Today I filled up at a Chevron in Pasadena and it was $4.10 a gallon.”

That’s not the worst of it.

A Mobil station in North Hollywood posted regular for $4.93 a gallon Tuesday and an Arco in Torrance was selling it for $4.89 a gallon. On the flip side, a Union 76 station in Upland listed regular for $3.35 a gallon.

A previous Consumer Watchdog report showed that California refineries keep a 10.7 day supply of gas supply on hand as opposed to the national average of 18 days.

“They keep us running on empty so that when a refinery goes down the price of gas goes way up — so do their profits,” Court said.

Court said the disparity between the cost of gas in California and rest of the nation doesn’t add up.

Refiners say California’s environmentally stringent blend of gas results in an increase of 10 cents per gallon at the pump, according to Court.

“When you add that to the 15 cents we pay in gas taxes it comes to 25 cents,” he said. “But California’s gas price is $1.10 above the national average. I would say it’s outrageous ... it’s collusion.”

Bob van der Valk, senior editor for the Bakken Oil Business Journal, acknowledged that oil companies are making good profits. But he said there is no collusion involved. They are saddled with continual adjustments in gasoline blends, he said, and that can sometimes result in legitimate maintenance issues that need to be addressed.

“During the year we have five different types of gasoline,” van der Valk said. “The winter blends are done in gradations and then there is an overnight switch to the summer blend.”

California has weathered its share of refinery problems this year.

The ExxonMobil refinery in Torrance remains mostly offline in the wake of an equipment failure that occurred in mid-February. The failure resulted in an explosion that injured four people and that facility is not expected to return to full operation until July at the earliest.

Tesoro’s Golden Eagle refinery in Martinez shut down on Feb. 1 when steelworkers at the facility joined in a nationwide strike. The facility was later restarted, but a processing unit was briefly shut down last month, although it has since resumed operation. Chevron’s refinery in Richmond also did an unplanned shutdown last month for flaring, which occurs when too much pressure builds up due to over-pressurizing of equipment and flammable gas is released through pressure-relief valves.

A Phillips 66 refinery in Carson is in the midst of a planned maintenance operation that could last four to six weeks, according to Patrick DeHaan, a senior petroleum analyst with GasBuddy.com.

Consumer Watchdog is calling for greater transparency and accountability for refiners. The state should require refiners to keep another week’s worth of gas on hand, the group said, and California should also accelerate its transition to alternative technologies, such as electric cars.

“Government intervention is the only hope for changing a system that’s been tilted against drivers for the last decade,” the report said.

 

Reach the author at Kevin.Smith@sgvn.com or follow Kevin on Twitter: @SGVNBiz.