#United States #Consumer Watchdog #Sacramento #California Oil #Profit Margins

California Oil Refiners' Profit Margins on the Rise

In February, oil refiners in California reported an average profit margin of 80 cents per gallon, as per the latest updates from the California Energy Commission. This dramatic increase in profitability comes as a result of a fire incident at a PBF refinery located in Northern California, which halted gasoline production, consequently creating a supply gap in the market. The situation has offered refiners an opportunity to elevate their margins significantly.

The last two months have seen an expanding disparity between gasoline prices in the U.S. and those in California, hinting that the profit margins for refiners likely grew even more substantial in March and April. Jamie Court, the president of Consumer Watchdog, expressed concerns about these developments, indicating that refiners might be taking advantage of the temporary outage to report greater profits to their shareholders. He urged for enhanced regulatory measures to safeguard California consumers, as any further pullback on refinery regulations could exacerbate customer pain at the pump during the summer months and beyond.

Court emphasized, "The Northern California outage created a profit-taking opportunity for oil refiners, and they are reporting to shareholders that the planned closure of two refineries in the next year will yield greater profits due to reduced supplies." He called on California's Governor Gavin Newsom to fulfill his commitments regarding oil refiner accountability, advocating for the immediate implementation of regulations designed to maintain minimum inventory levels and resupply mechanisms to ensure consumer protection.

Despite previous promises, the California Energy Commission has yet to finalize the minimum supply regulations, which were initially expected to be in place by summer. The latest data also revealed that, in contrast to last year when refiners had an average margin of 70 cents per gallon, the average margin surged to $1.01 per gallon last year following the introduction of reforms aimed at enhancing oil refiner accountability.

Court’s detailed analysis illuminates the substantial profit landscape in California’s oil refining industry: "California oil refiners are making healthy profit margins by any historical measure. The operational cost for running a refinery in the state is reported to be around 20 cents per gallon. Hence, an 80-cent gross refinery margin indicates that a refinery retains approximately 60 cents on every gallon of gasoline produced."

Refinery gross margins are assessed by subtracting the cost of crude oil from the wholesale price of gasoline. By these metrics, the current margins indicate that the state’s oil refiners are succeeding financially in what could potentially be a troubling trend for consumers.

During recent shareholder calls, executives from major oil corporations voiced optimism regarding their prospects in California's refining market. Mike Wirth, Chairman and CEO of Chevron Corporation, remarked, "We have a strong position. Our two refineries are well-equipped in terms of scale and complexity, which allows us to maintain an advantageous position within the market." Meanwhile, Matt Lucey, President and CEO of PBF Energy, commented on the critical nature of oil products for sustaining the state's well-being, referencing anticipated market shortages due to the announced refinery closures and the subsequent potential for higher-cost imports.

As California grapples with regulatory and market dynamics, it is clear that the oil refining sector's fortunes are shifting, raising pressing questions about consumer impacts and the regulatory measures necessary to protect end users in a volatile market. The unfolding situation calls for immediate attention both from regulatory bodies and the state’s leadership to navigate this challenging environment effectively.