Unable to control oil companies’ record profits, the federal and state governments have limited options to prevent unbridled greed from the oil industry from slamming consumers but, more importantly, contributing to the runaway inflation the drags the economy into recession. Oil industry claims that they’re entitled to records profits when supply shortages drive prices into the stratosphere. When oil and refined products are bountiful, oil industry executives claim that industry makes less profit, chocking it up to dollar-cost-averaging in leaner years. But with inflation hitting all aspects of the consumer economy, consumers question the advisability of the oil industry taking record profits when Wall Street and the economy in general deteriorates. As petroleum prices vacillate, the oil industry typically adjusts pump prices, lowering when the price of oil per barrel drops, and rising when it goes up.
When you consider that oil prices peaked June of 2008, the price of a barrel of oil hit $147 per barrel, while a gallon of gas hit $4.10 a gallon. When the price of oil in June 2020 plummeted to zero dollars, a gallon of unleaded regular was $2.14. So supply and demand definitely affect the price of petroleum and unleaded gasoline. Today’s situation finds oil prices dropping from $120 a barrel down to today’s $79.74, with the unleaded regular nationwide at $4.32, compared with $6.40 in California, the highest price in the country. Calif. Gov. Gavin Newsom, 54, called the California legislature, currently out of session until 2023, to pas a windfall profits tax, something tried in 1977 former President Jimmy Carter era but failed to yield rebates to ordinary consumers. Record profits by the oil industry, averaging $10 billion quarter, prompted President Joe Biden to demand oil companies don’t gouge prices.
When you consider hurricane Ian causing up to $100 billion in damage to Florida’s west coast, it’s tempting for the oil industry to start hiking prices. “They’re ripping you off,” Newsom said, demanding that the Calif. legislature do something to stop the oil industry from taking advantages. Things got dicey for oil prices Feb. 24 when the Russian Federation invaded Ukraine, causing runaway fuel prices in the U.S. and Europe. Increases in fuel prices, attributable to Biden’s boycott of Russian oil, fuel today by the Ukraine War. Most economists think that Ukraine War has cost the U.S. and EU economies trillions in market capitalization, as stock markets on both sides of the Atlantic continue to melt down. Oil industry executives refute Newsom’s price gouging theory, insisting the Calif.’s over regulation add at least one dollar to the price of unleaded regular at the pumps.
AAA oil analyst Doug Shupe, a spokesman for the Southern California Auto Club, said that summer-blend, less polluting gasoline accounts for 15 to 20 cents a gallon for unleaded regular, but hardly makes a dent in Calif.’s inflated gas prices. “If these prices go up to $7 a gallon, a 15-cent drop is not really going to mean much to drivers,” Shupe said. Oil industry says that refinery shutdowns for maintenance and repairs have also contributed to spiking pump prices. Newsom slammed the oil industry which insists that individual-owner-operators control pump prices, not individual oil companies, like Arco, Exxon-Mobil, Chevron, etc. Newsom asked the oil industry to go off more costly summer blend gasoline, despite the fact he wants to transition away from the internal combustion engine to electric vehicles. When heat waves struck the state last month, Newsom asked EV owners to stop charging cars.
Pointing fingers at the oil industry doesn’t tell the whole story of how California generates massive profits on pump prices. If Newsom really wants to help consumers, he’d change the regulation that has Calif. consumers paying nearly double than other U.S. states. “It’s a conscious decision to try and put the responsibility back on the oil industry,” said Cara Greene, spokeswoman for the Western States Petroleum Assn. Green thinks that if Newsom wants to reduce pump prices, he needs to change the excise taxes on gasoline. “Any impacts on air quality causes by this action are expected to be minimal and outweighed by the public interest in temporarily relaxing” the limits on the Air Resources Board. Republicans in Sacramento urged Newsom to suspend the state gas tax to give consumers relief. Whatever’s responsible for Calif.’s exorbitant gas prices, government and industry should work together.
Newsom is troubled seeing oil industry making record profits off the backs of Calif. consumers. It’s highly inflationary for gas and diesel prices to remain significantly higher than the national average because it contributes to the cost of landing goods by train, truck or air travel. Newsom’s edict about ending the sale of new gas vehicles in Calif. by 2035 is unrealistic, especially if the state can’t build out the electric grid to accommodate the amount of output needed to charge millions of EVs. Telling EV owners to stop charging cars during heat waves doesn’t bode well for the future if Newsom can’t get the Calif. electric grid built out. U.S. Berkeley’s consumer watchdog Severin Borenstein and Western Petroleum Assn. Greene agree that ending the surcharge on gas could save consumers around 70-cents to one dollar a gallon. Blaming the oil industry doesn’t identify where the greed comes from.
About the Author
John M. Curtis writes politically neutral commentary analyzing spin in national and global news. He’s editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.
