Crude awakening: Oil prices down, gas prices up an extra 50 cents a gallon in North County

By: CHARLES LANGLEY - For the North County Times

On Wednesday, the North County Times survey of gas prices reported an average price of $3.08 a gallon ---- a 17-cent increase in one week. On the same day last year, gasoline in North County cost $2.58 a gallon, and the price of NYMEX oil was $5 a barrel more than Wednesday's NYMEX closing price of $58 a barrel.

The new price sets an all-time record high for the month of March in San Diego County.

What these numbers mean is that while the price of oil is lower than it was at this time last year, the price of gasoline in North County is 50 cents a gallon higher.

Don't blame the dealers ---- they're getting gouged, too.

Many independently owned, non-branded stations in North County are losing money. According to our calculations, the typical dealer has to charge at least $3.01 a gallon to break even on a gallon of gasoline, and on Wednesday, our survey showed more than 50 stations selling gasoline at well below $3 a gallon just to hold on to their customers. Owners of brand-name stations aren't faring much better either. Their margins are probably close to 5 cents a gallon.

Redlining by any other name

Few consumers know it, but virtually all gasoline prices are redlined by the pricing managers at the companies they buy their oil from. The industry calls this practice "zone pricing," but everyone else calls it "redlining." As a result of zone pricing, a Shell dealer just a few miles away from another Shell dealer might be forced to pay a wholesale price that is 20 cents higher. All of the major brands use zone pricing to prevent price wars between dealers. The practice also ensures when money is being made on gas that it stays in the pockets of the refineries. (The practice is detailed in Sen. Ron Wyden's "Report on Anticompetitive Concerns in Oregon Gasoline Prices.") In other words, that extra 50 cents you are paying ---- and more ---- is going straight into the pockets of Big Oil.

WSPA campaign

Big Oil's Big Lie is that "environmentalists won't let us make gasoline."

On March 9, the North County Times quoted an oil industry lobbyist as saying: "California's gasoline demand has gone up '50 percent in the last 20 years,' while the number of refineries in the state dropped from 32 to 14. 'With our supply and demand so finely balanced, it doesn't take very much to see pretty dramatic changes in pricing.' "

This statement, by Mr. Tupper Hull of the powerful oil lobbying group, the Western States Petroleum Association, is extremely deceptive. Yes, California has fewer refineries, but it is because the oil industry has aggressively shut them down and consolidated its operations. Fewer refineries mean less competition. The result is a dysfunctional market where seven refining operations control 91.5 percent of the gasoline sold in the state. This is too much gasoline in the hands of too few companies.

In fact, in 2003, Shell tried to shut down its Bakersfield refinery citing low profits as the reason behind the closure. Later documents provided by a whistle-blower at the refinery showed that Shell's Bakersfield operation

had the highest per-gallon profits of any refinery in the United States.

Refineries have a year to prepare for the inevitable spring shortages. If they were aggressively trying to compete and get new customers, they would make certain that they would have enough inventory at this time of year to undercut the competition. Unfortunately they've learned that it is more profitable to keep supplies tight than to compete. Today's high prices are another example of how dysfunctional California's gasoline markets have become.

Big Oil's Big Profits

How profitable are higher gas prices for Big Oil?

As we observed, the cost of oil on Wednesday was $5 a barrel less than last year, yet North County motorists are being charged an extra 50 cents a gallon for their gasoline. As we also observed, the retailer is making almost zero profit. What that means is that as of this writing, California refineries are making 50 cents more per gallon of pure profit on their gasoline now than they were on this day last year (see California Energy Commission tables of refinery margins).

What is Big Oil costing you?

If you buy 20 gallons of gasoline at today's price, you will pay $20 more than you did last year even though oil costs $5 a barrel less than it did last year. All of that $20 is going straight into the refineries' pockets.

What can consumers do?

1) Sign up for a free copy of the Utility Consumers' Action Network's gasoline-saving guide (available free to San Diego residents only).

2) Write your elected officials in the California Assembly and Senate. Let them know that this isn't a problem about a lack of refining capacity; rather, it is a lack of competition that is pushing prices higher.

3) Consider joining UCAN. We are the only consumer group in San Diego that is passionately engaged in local energy issues.

4) Support locally owned independent gas stations. Our research shows that small, locally owned gas stations are the most competitive stations compared to stations that are company-owned and operated. When you buy gas at an independent station, you are supporting competition and keeping your money in your community.

5) Use the North County Times gasoline survey to shop for your gasoline. If you are a heavy commuter, it can save you hundreds of dollars a year. Our research shows that it has helped lower the price of gasoline by as much as 20 cents a gallon in San Diego County.

Charles Langley collects data for the North County Times. He is a public advocate and project manager for the Gas Project at UCAN, the Utility Consumers' Action Network. He edited UCAN's free 32-page guide, the "Guzzler Buster: 127 Secrets to Squeezing More Miles From Each Gallon." UCAN's Guzzler Buster is available free of charge to San Diego County residents who visit the UCAN Web site at www.ucan.org.