Improving crude oil market conditions usually are accompanied byincreasing political scrutiny into rising prices. A good example ofthat is occurring in California where Attorney General Bill Lockyerhas vowed to probe deeply into the mergers of major oil and gasproducers following a report that shows consolidation is one of thereasons California has experienced some of the highest gasolineprice spikes in the nation.
“We are going to pursue the investigation of the petroleumindustry and we are going to carefully scrutinize the pendingmergers of Exxon-Mobil and BP-ARCO to see what we can do to restoremore healthy competition,” Lockyer said. “Our concern is that highgas prices in California are the result of low competition in themarket.”
The report, which was completed for the attorney general’soffice by economists Keith Leffler, Ph.D., and Barry Pulliam,concludes that higher prices for gasoline in California compared toother states are largely the result of the concentration andcontrol oil companies have over the production and sale ofgasoline, the state’s decision to require clean-burning gasolineand its relative isolation from alternative fuel supplies.
Lockyer added that both legal and legislative changes would bepursued. He plans to convene a workgroup of experts to developrecommendations for reducing California’s vulnerability to refineryoutages and resulting price spikes, and for changing free marketforces to push down price spikes and increase competition.
“In California, just six companies account for more than 90% ofCalifornia’s refining capacity, and these same six companiescontrol more than 90% of the gasoline sold in California,” Lockyersaid. “The situation is different outside California. In Texas, bycontrast, the top six refiners control less than 58% of capacityand under 34% of the gasoline sold. What the report offers iscredible data and highlights matters deserving more attention.”
The report shows Californians paid an extra $1.3 billion forgasoline from January to August 1999 as retail pump prices climbedto an average $1.317 with the April peak at 43 cents more pergallon than a year earlier. The U.S. average during the first eightmonths was $1.084, with Georgia offering the lowest price at $0.886per gallon.
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