#United States #Consumer Watchdog #Sacramento #California Energy #Refining Margins

California Oil Refiners Report Record Profits

In May, the California Energy Commission (CEC) revealed a concerning trend regarding the profitability of oil refiners in the state. According to their latest data, refiners are now making over $1 per gallon in gross profits. This figure represents a notable increase from earlier months, with gross margins rising from 43 cents per gallon in January to an impressive $1.01 by May.

The breakdown of profits casts a significant light on the gasoline pricing structure. The retail margin, which is the amount refiners earn solely from retail sales, has climbed to $1.05 per gallon, emphasizing the considerable earnings they are pocketing amid ongoing discussions about fuel affordability. As this increases, the refining margin now constitutes about 23% of the total price consumers pay at the pump. When combined with distribution costs, the total overhead from refining and distribution accounts for 38% of the gasoline price, while crude oil itself only makes up 35%.

Such staggering figures highlight the role of state taxes, environmental fees, and the subsequent burden on consumers. Jamie Court, president of Consumer Watchdog, pointed out that a significant portion of what Californians are paying for gasoline goes directly to refiners, remarking, "The lion's share of what California consumers are paying for gasoline is going straight into oil refiners' pockets. This is a hugely profitable industry, and Sacramento needs to take heed of this before giving away more handouts to the industry."

Court accentuates a critical point, noting that a jaw-dropping $1.75 of every gallon sold ultimately reaches the refiners and retailers. With these margins exceeding those found in other regions, it raises the alarm that state lawmakers must recognize the industry's profitability. The existing high margins serve as a crucial warning sign rather than an invitation for leniency or further subsidies.

The industry's current trajectory and investor sentiments were echoed in a recent earnings call led by Valero Energy's CEO Lane Riggs. He mentioned that the ongoing tight supply of gasoline is expected to sustain these higher profit margins in the foreseeable future. Riggs highlighted how the refining margins are benefitting from aided demand against the backdrop of low global inventories.

In an effort to help rectify this situation, Consumer Watchdog has commended the California Energy Commission's initiatives, especially in light of seeking new buyers for the Valero Benecia refinery. This action draws parallels with previous efforts made by notable political figures such as former Attorney General Bill Lockyer and Senator Barbara Boxer, who once successfully navigated the sale of the now-closed Flying J refinery in Bakersfield.

Despite these efforts, there's growing concern that refiners may prefer to shut down profitable operations. As Court elucidates, "Refiners will shut down profitable refineries because they know that they can make more money by making less gasoline." Hence, accountability must be enforced to ensure the maintenance of valuable resources, minimizing the risk of closures that could result in a monopoly-like structure, leaving only a handful of refiners controlling nearly all gasoline production in California.

The unfortunate reality is that if current closure trends continue, four refiners could dominate 98% of California's gasoline sales by April 2026. This consolidation of power could grant them unfettered ability to manipulate prices, inflating costs for consumers even further. With the Energy Commission working to expedite price gouging penalties, there lies an urgent need for concrete regulations to limit these practices.

The CEC's analysis further revealed refining margins transitioning from 43 cents in January to 80 cents in February, followed by 75 cents in March, and peaking at 97 cents in April. This metric is crucial as it represents the profit retained by refiners after accounting for costs associated with crude oil and regulatory fees.

As the state navigates these tumultuous waters, the recent data serves as a call to action for lawmakers to safeguard consumer interests while holding refiners accountable for their pricing strategies. The stakes are high, and the economic implications are profound; the time for decisive legislative measures is now.