Rising Calif. Gas Prices Prompt Lawsuit Against Big Oil Cos.

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Rising Calif. Gas Prices Prompt Lawsuit Against Big Oil Cos.


SAN DIEGO — Gas station operator Persian Gulf has filed suit against major oil companies, including Chevron, ExxonMobil and Shell, alleging a conspiracy to gouge gas prices in Southern California by creating false gasoline shortages in the region. Gas prices here typically float around 25 cents per gallon more than the national average, reported Courthouse News Service.

"For years, Californians have seen tremendous spikes in gasoline prices, seemingly untethered to normal market forces of supply and demand," states the complaint. "Various reasons have been posited for these giant spikes, including the unique nature of California's gas market. However, a number of spikes over the years were not the result of California's market structure (though perhaps enabled by it), but instead are the result of anticompetitive conduct on the part of the major gas refineries operating in the state."

As evidence, Persian Gulf, which operates a 76 gas station in Escondido, Calif., cites data from a time period in May 2012 during which increased production, decreased demand and increasing inventories should have resulted in lower gas prices. However, prices spiked instead of falling along with prices in the rest of the company, according to the lawsuit.

The major oil companies reportedly blamed a Washington, Calif., refinery fire, springtime formula conversion and maintenance shutdowns for the 2012 price spike. Persian Gulf's lawsuit cites reports from McCullough Research that outline reasons why prices should have fallen despite those factors. Six West Coast senators requested that the Department of Justice launch an investigation, citing the McCullough reports and stating that "anomalous, uncompetitive market dynamics may have forced West Coast drivers to pay $1.3 billion more at the pump during the May 2012 price spike than they should have," according to the report.

The lawsuit also discusses alleged evidence of more recent prices spikes.

While 19 oil refineries operate on the West Coast, the major refiners own several of them, and the commuter culture of Southern California creates inelastic demand. "This is exactly the type of environment where market power is likely to exist," states the complaint, which claims that regular meetings of trade associations in the oil and gas industries provided the opportunity for collusion.

The full list of defendants includes Alon USA Energy, BP West Coast Products, Chevron USA, ConocoPhillips, Equilon Enterprises, Shell Oil, ExxonMobil Refining & Supply, Kern Oil & Refining Co, Tesoro Refining & Marketing Co., and Valero Energy Corp.

The latest California gas price spike occurred within the last week, with the state average climbing 22 cents per gallon from July 10 to July 13, prompting the California Energy Commission to investigate the fundamentals behind the increase, reported AAA. Earlier reports indicate that higher than expected gasoline demand and distribution systems that are unable to keep up are to blame, in spite of refineries exceeding last year's production rates.

Upward pressure on prices in the region is likely to remain until supply issues are resolved, AAA predicted.

Statewide, California is currently the most expensive market for retail gasoline at $3.72 for a gallon of regular gasoline, followed by Alaska ($3.47), Hawaii ($3.34), Nevada ($3.25) and Washington ($3.20).