August 06, 2004

View From Lodi, CA: Gas Gougers? (With JoeNote To VDARE.COM Readers]

$1.50…$1.75…$2.00…$2.25…$2.50…$3.00?

Is the next stop for gasoline $3.00 a gallon? California motorists have experienced a rocket-ride when it comes to soaring gas prices.

On my last trip to Los Angeles, I paid $2.51 for regular at a gas station near the airport. And while prices have backed down somewhat, they remain painfully high—consistently forty cents a gallon higher than the national average.

While motorists do a slow burn over pump prices, the oil companies are, according to Fadel Gheit of Oppenheimer & Company in New York, “printing money. I don’t see anything that will slow this down anytime soon.” [Chevron Profit Soars By Debora Vrana, Los Angeles Times July 31, 2004]

Gheit was referring to the astronomical and utterly shameless profits recently reported by ChevronTexaco, the nation’s second-largest oil company. In the quarter ended June 30, the company reported net income of $4.1 billion up from $1.6 billion from the same period in 2003. On news of those earnings, the stock hit a three-year high of $95.65 a share on the New York Stock Exchange.

While the second quarter earnings were rolling in, retail gas prices increased 26%. That’s tough to swallow when profits of $4 billion (in a single quarter!) have just been released.

ChevronTexaco doesn’t acknowledge the least discomfort with its profits or the impact of its prices on your wallet.

Chief Executive Dave O’Reilly, "We're proud of the progress we've made."

But consumer advocates see it differently. Critics claim that the oil giants use the Iraq War, the cost of refining environmentally safe fuel and “market forces” as the reason for the price run-up.

Jamie Court, president of the Santa Barbara-based Foundation for Taxpayer and Consumer Rights, warns that we should not be fooled.

According to Court, the high profits recently reported by oil companies are generated

“by companies keeping their refineries running on low inventory, particularly in California, and manipulation of the commodity market that sets the price for gasoline. The price at the pump bears no relation to the cost of production. The proof is in these record profits ”

In a March 2004 news released titled “Consumer Group Says Refiner Manipulation is the Source of High Gas Prices,” Court and petroleum analyst Tim Hamilton advise consumers to think “Enron” when considering what they pay at the pump.

Wrote Court and Hamilton,

“During the blackouts, electricity barons like Ken Lay blamed the crisis on overuse and market restraints, but state investigations later found the real problem was that unregulated electricity plants were strategically shut down to reduce supply and make prices skyrocket. But the problem [regarding retail gas prices] is as simple as California's electricity crisis turned out to be: A few giant energy corporations have manipulated supply to keep profits high.”

Court and Hamilton say that the oil companies “cheat rather than compete.” And that is why you pay more.

Since 1981, the number of California refineries has been cut in half even though the state’s population has soared. As a result, only seven refiners control 99% of the state’s gasoline supply.

By keeping inventories purposely low, Court and Hamilton found that when refiners experience problems like fires,

“the market anticipates a shortage and sends the speculative price of gasoline sky-high. Refiners make a killing because it doesn't cost them any more to produce the gasoline, which they can charge more for.”

The looming problem for California motorists is Shell’s announcement that it would close its Bakersfield refinery by the end of the year.

Couch and Hamilton are dismayed that Shell is not looking for a buyer. If Bakersfield simply shuts down, supplies will automatically be further restricted. Reduced supplies will inevitably lead to $3.00 a gallon gas, according to Court.

The FTCR concluded that in California’s car dependent culture, unaffordable gasoline hurts everyone. The organization, which leans toward re-regulating gasoline prices, recommends that Governor Arnold Schwarzenegger influence Shell to keep the Bakersfield plant open and operating. Failing that, the FTCR recommends that Attorney General Bill Lockyer bring suit against Shell.

To date, there has only been token involvement by government at any level. Senators Dianne Feinstein and Barbara Boxer have sent letters. And Lockyer convened in Los Angeles with “industry experts.” But, not surprisingly, nothing tangible has developed.

And don’t look for that phone call from Schwarzenegger anytime soon.

The Internet blog www.arnoldwatch.org reported that four top level appointees of the Governor—Cabinet Secretary Marybel Batjer, Resources Secretary Mike Chrisman, CalEPA Secretary Terry Taminen and Deputy Secretary of Energy Joe Desmond—just returned from an eleven day junket to Sydney, Australia and South Korea that included a yacht trip and three nights at Sydney’s Four Season Hotel. All expenses were paid by the energy industry funded California Foundation on the Environment and the Economy.

Schwarzenegger himself is the recipient of enormous generosity from big oil. ChevronTexaco, Shell and others contributed $256,000 to the governor’s Recall campaign.

Keep your eyes on Bakersfield. You’ll need to start budgeting now for $3.00 a gallon if it closes.

JOENOTE TO VDARE.COM READERS:

According to the laws of supply and demand, immigration directly affects the price of gasoline. This is the kind of indisputable logic that the Wall Street Journal and the New York Times understand but chose to argue with anyway.

Every year in California, a net 600,000 more people arrive. According to a study by Californians for Population Stabilization, those 600,000 are either immigrants or their children.

All will need transportation. Some will buy their own cars; others will ride public buses. That means more gasoline consumed every year. With refinery output stable, retail prices are subject to upward pressure.

Joe Guzzardi [email him], an instructor in English at the Lodi Adult School, has been writing a weekly column since 1988. It currently appears in the Lodi News-Sentinel.