New Study Refutes Newsom’s Charge of Big Oil ‘Price Gouging’

New Study Refutes Newsom’s Charge of Big Oil ‘Price Gouging’

A sign shows gasoline fuel prices at a Shell gas station in Los Angeles on Oct. 5, 2023. (Patrick T. Fallon/AFP via Getty Images)

John Seiler

John Seiler

3/19/2024

Updated: 3/21/2024

Commentary
Californians pay the highest prices for gasoline at the pump. Why? Quick summary: A new study finds the state price is on average $1.20 above the national average. Of that, only around 40 cents per gallon derives from higher crude oil prices and refinery costs, charged by the Big Oil companies. The bulk of the higher cost, about 80 cents, comes from state taxes, environmental regulatory costs, and other fees.
The study is “Pain at the Pump: Blame Politicians, Not Producers, for High California Gasoline Prices,” by Robert J. Michaels, and economics professor at Cal State Fullerton, and Lawrence J. McQuillan, a senior fellow at the Independent Institute. The authors produced a graph showing where the price came from on a single date, July 17, 2023, based on data from the California Energy Commission. Also included are the percentages of retail price.
(Independent Institute/Screenshot via The Epoch Times)

(Independent Institute/Screenshot via The Epoch Times)

Here are the government taxes and fees:
  • 12 percent state excise tax
  • 11 percent environmental fees
  • 4 percent federal excise tax
  • 2 percent state and local taxes
Total government taxes and fees: $1.39 or 29 percent of the total cost of gas in California. Is it any wonder gas costs so much here?
And let’s remember as recently as 2017, the Legislature passed Senate Bill 1, which imposed a new, 50-cent per gallon gas tax. Fox LA reported the price of that levy rose to 58 cents last July due to inflation.

Foreign Crude Oil Dependence Is Increasing

Big Oil is responsible for the cost of crude oil. But the study showed that price is set globally. There are three main benchmarks: Dated Brent (from the United Kingdom), West Texas Intermediate (WTI), and Dubai. Another graph showed how close they are in price over time.
(Independent Institute/Screenshot via The Epoch Times)

(Independent Institute/Screenshot via The Epoch Times)

Mr. Michaels and Mr. McQuillan write: “The data demonstrate that in mature global markets such as crude oil, prices will tend to converge over time and move together when events impact market participants. Transaction costs represent ‘obstacles’ that keep prices from equalizing in the long run. Local events, such as refineries suddenly shutting down due to unexpected maintenance, a fire, or a hurricane, can disrupt markets temporarily—more so in California.”
Disruptions occur more in this state because it is a “fuel island.” It uses two unique gasoline blends, summer and winter, to fight smog. When state refineries are down, it can’t just bring in gas from Arizona or Nevada.
Data from the California Department of Energy shows where the crude to California came from in two different years. In 1997, 50 percent came from in-state, 38 percent came from Alaska, and 12 percent was foreign. In 2022, 25.8 percent came from California, 15.2 percent from Alaska, and 59 percent was foreign.
Notice reliance on foreign crude soared from just 12 percent in 1997 to 59 percent today—almost five times as much.
(Independent Institute/Screenshot via The Epoch Times)

(Independent Institute/Screenshot via The Epoch Times)

On foreign oil imports, the authors note: “Imports from Saudi Arabia, which must be transported across the Pacific Ocean, are rising overall and today exceed the supply from Alaska, which is declining. Mexico’s history of oil field nationalization since the 1930s and its problematic political relationship with the United States have combined to reduce its actual and potential exports to the United States and California. Canada sends substantial amounts of crude oil to the Midwest and Northeast, but limited pipeline capacity leaves it with only a small fraction of California’s market.”
(Independent Institute/Screenshot via The Epoch Times)

(Independent Institute/Screenshot via The Epoch Times)

It’s obvious California’s government has zero influence over the price and flow of global oil supplies.

California’s Gas Price Soared the Past 2 Decades

I remember buying regular gasoline for less than $1 per gallon in the late 1990s. I could fill up my 1993 Toyota Corolla for less than $10. That low price at the pump was close to the average of the 50 states.
Nowadays, every time I return from visiting my brother in Arizona, I make sure I fill up at Ehrenburg, the last city before heading west across the Colorado River. The Michaels-McQuillan study used data from July 17, 2023 as its base of analysis. But let’s look at the prices now.
According to GasBuddy.com, on the morning of March 15, the Shell station in Blythe, Calif., posted regular gas costing $4.69 a gallon. But drive across the border to Ehrenberg, Ariz, and the Shell station there posted $3.35 a gallon.
That’s $1.34 a gallon less. You can’t blame that, as Mr. Newsom does, on Big Oil, because it’s the same Big Oil company: Shell plc, which until 2022 went under the more winning name Royal Dutch Shell plc. And the Auto Club’s tally of state prices for the same date found:
  • U.S. average: $3.44 a gallon;
  • California: $4.89, $1.45 higher than the national average, and highest among the 50 states;
  • Arizona: $3.64, $1.25 less than in California.;
  • Texas: $3.058, $1.83 less than in California, and third lowest by a fraction;
  • Colorado: $3.056, $1.83 less than in California, and second lowest by a fraction;
  • Mississippi: $3.01, $1.78 less than in California, and lowest among the states.
Texas is the global headquarters of the oil industry, giving it immense influence over the state. Wouldn’t that mean Big Oil would control gas prices at the pump there, and make them the highest in the country, instead of third lowest?
And how about Colorado? It’s just as liberal politically as California, yet enjoys the second-lowest gas prices among the states.

Blame California’s Politicians for High Gas Prices

The Michaels-McQuillan study definitively shows it’s not Big Oil that’s largely responsible for California drivers suffering the highest gas prices in the country, but the politicians in Sacramento, beginning with Mr. Newsom. And it’s just going to get worse.
A year ago, Mr. Newsom signed into law Senate Bill 2, which set up yet another state bureaucracy, the Division of Petroleum Market Oversight. Compliance costs for Big Oil inevitably will drive prices higher, not lower.
And in September, as I wrote in The Epoch Times, Mr. Newsom joined Attorney General Rob Bonta in suing Big Oil for the “climate change” damage supposedly done to the state by fossil fuels. That also will increase regulatory costs for Big Oil, which will be passed on to consumers.
Some of these companies might even leave the state, reducing competition—which would push prices even higher.
The manufactured hysteria over Big Oil helps Mr. Newsom’s obvious presidential ambitions, allowing him to deflect charges he’s responsible for California’s high gas prices. The lawsuit also will help Mr. Bonta’s gubernatorial ambitions.
The result for many families will be to fill up their SUV gas tanks one last time in California, then head east permanently to another, better-run state with cheaper gas.
Copy
facebooktwitterlinkedintelegram
John Seiler

John Seiler

Author

John Seiler is a veteran California opinion writer. Mr. Seiler has written editorials for The Orange County Register for almost 30 years. He is a U.S. Army veteran and former press secretary for California state Sen. John Moorlach. He blogs at JohnSeiler.Substack.com and his email is writejohnseiler@gmail.com

Author's Selected Articles
California Insider
Sign up here for our email newsletter!
©2024 California Insider All Rights Reserved. California Insider is a part of Epoch Media Group.