Oil prices have dropped by 10% since the November 2006 election. Gasoline prices in California have gone up by almost 10% since the election. Have the oil companies figured out a way to decouple the price of oil from the price of gasoline? It would appear so ... and California's government is apparently letting them do it.

Currently, drivers in states like Ohio and Texas are paying as little as $1.90 per gallon of gasoline. In San Diego, the average price is close to $2.60 - a difference of 36%. In those (and most other states), gasoline prices have dropped over the last month. In California, prices have gone up.

In the last three years, Big Oil has routinely blamed high oil prices for high gas prices. "It's all about supply and demand," they say. In fact, the media flackers who represent Big Oil, have stated repeatedly that the cost of oil is so intimately linked with the street price of gasoline that when the NYMEX oil price goes up, it means that the price of San Diego gasoline must go up within 48 hours. But what they don't tell you, is that when the price of oil on the NYMEX drops, the price of gasoline may not decrease for a very, very long time.

No correlation between gas prices and oil prices

Yesterday, the average price of gasoline in San Diego County averaged $2.62 per gallon - a penny less than it cost three weeks ago on December 21. Meanwhile, the cost of oil on a per gallon basis has plummeted from $1.49 a gallon three weeks ago ($62.66 a barrel), to a closing price yesterday of $1.23 a gallon ($51.88 a barrel).

That's a price decline of 26¢ a gallon for oil in just three weeks, yet our gasoline prices have dropped by 3¢.

It's even worse in Los Angeles. According to a survey conducted by the Energy Information Agency on Monday, the average price of gasoline has actually increased by 6¢.

A quick check of other states shows huge disparities in the price of gasoline and the cost of oil.

The same energy Information Agency Survey shows that nationally, gas prices have increased from an average of $2.20 a gallon just prior to the election on November 8, to $2.30 a gallon in January 5. During the same time period, the cost of oil dropped $8 a barrel from $60 on November 7, to $52 a barrel yesterday. That's a per-barrel decrease equal to 11¢ a gallon, of yet nationally gas prices increased by more than 10¢ a gallon.

Yet gas prices didn't increase everywhere while oil prices plummeted. As the table below demonstrates, In Ohio and Texas, gas prices have declined steadily while prices in the state of California increased.

Why Californians are getting gouged

Big oil has learned (especially in California) that it doesn't need to obey the laws of supply and demand because the cops on the oil beat are too busy eating the free donuts they're getting from the energy lobby. These "cops" otherwise known as "politicians" need to understand that California's high gasoline prices make the state less competitive than neighbors with cheaper gas and a more business-friendly environment.

UCAN has repeatedly written the Governor requesting a series of gasoline price reforms that would curb Big Oil's gouging of California consumers, but don't hold your breath - Governor Schwarzenegger is unlikely to do anything. The fact that he has accepted an estimated $3 million dollars from oil and energy companies may explain some of his disregard for the dysfunction of California's gasoline markets.

The fixes aren't difficult. California needs to make the California Energy Commission a watchdog, and not a lapdog, regulatory agency. It needs to inject some much-needed competition into the moribund California markets. It needs to begin monitoring activities in the wholesale gasoline markets. It needs to improve its tracking of gas produced in California that is exported out of state (or out of the country). Until some or all of these reforms are adopted, California will continue to pay inflated prices for gasoline --- and the market mechanisms that we rely upon to keep gasoline affordable will languish from neglect.