Since late 2006,  UCAN began sounding the alarm that gasoline prices were going to rise -- and rise dramatically -- not because of the price of oil -- but through the oil companies' exercise of market power.    After the defeat of Proposition 87 by California voters,  the oil companies were given carte blanche to let the gouge begin.   And they did it through their refineries,  UCAN maintained.

The oil companies' confessions began this week.  On April 26, Exxon/Mobil reported that even though it produced less product than last year, it earned profits of 10% on unusually high refinery margins (source: MarketWatch) and that the margins were so high, that the company "overcame lower crude oil and natural gas prices" (source: A.P. News).

The following day, April 27, 2007, Chevron joined the obscene profit bandwagon by announcing that it earned first-quarter profits of 18%, much of it on increased refining margins, even though the company produced less gasoline than last year. (source: AP News, International Herald Tribune). 

On the same day, Valero announced that it made the highest first-quarter profits in the company's history. Valero's Chairman, Bill Klesse, said  longer downtimes for planned refinery maintenance helped create the shortages that reaped record-shattering profits (source: San Antonio Business Journal).

Translation: They made more money by selling less gasoline.

For years consumer advocates have charged that oil companies are deliberately restricting supply in California and elsewhere in order to panic the wholesale spot market and drive up the value of their existing inventories by creating shortages. Last year's record oil industry profits were due largely to the high cost of oil. This year's earnings will show that even though the cost of oil has dropped, the price of gasoline has surpassed record highs for any April in recorded history. In other words, the cost of the oil that goes into a gallon of gasoline has dropped, but the cost of a gallon of gasoline has increased.

Did furry woodland creatures hatch a monstrous plot?

One good flare-up at a major California refinery is worth an extra dime of profit per gallon at the wholesale level, and the refineries know it. This spring, a host of highly questionable refinery shutdowns helped drive our gas prices to the highest they've ever been in April. Shell, for example, claimed that on Sunday, March 3, a raccoon singlehandedly shut down its massive Wilmington, California refinery after tripping a power line that disrupted the supply for ten seconds. Meanwhile, at almost exactly the same time, an opussum also managed to shut off power to Exxon/Mobil's Torrance refinery (source: Reuters).

The story does not mention if these critters were working as a team causing problems within hours of each other.  But needless to say, as excuses go, both of these are right up there with "The dog ate my oil well." Thanks to both of those SNAFUS, the price of San Diego gas prices surged by 8¢ in less than 36 hours and by 25¢ in the following four days.

The really galling fact is that in April of last year, the price of oil averaged $71.26 a barrel, while this year, oil averaged seven dollars a barrel less during the same time period (source: U.S. Dept. of Energy). That seven-dollar-a-barrel difference should mean that gasoline would cost 15¢ a gallon less than it did last year when gasoline averaged $3.01 a gallon in April.

When the wholesale price of a commodity drops and the retail price increases, something is horribly wrong.

Exxon didn't "overcome" low oil prices, as the news reports suggest. It gouged its way to higher profits due to an almost complete lack of competition at the refinery level. And so did Chevron.

These aren't earnings statements: they are confessions.  But sadly, the California regulators and Governor's office don't appear to be anywhere near the confession booth.    So the gouging is likely to continue this year.