Los Angeles Business Journal

High Oil Prices Pump Up Concern

By Charlie Feder Monday, July 29, 2013

Summer is under way, with its barbecues, parades, beach trips – and higher gas prices. And Angelenos recently found themselves paying a dizzying 11 cents more for every gallon – in an area that already ranks among the top five in the nation for high gas prices.

As a business owner who operates an all-natural gas fleet, we will avoid the fluctuations of summer gas prices, but our customers will feel the impacts.

Meanwhile, with $44 billion in profits last year, the oil companies’ grip on the industry affects our personal savings and business operations, and the nation’s economy. To be sure, gas prices rise and fall for many reasons, but one dangerous constant is that here in California, in particular, large oil companies are increasingly consolidated, reducing competition and generating concerns that consumers have ever-fewer defenses.

Just last month, the Federal Trade Commission approved Tesoro Corp.’s bid to take over BP PLC’s 240,000-barrel-a-day refinery in Carson, further merging the market power of major oil producers. As other big and prosperous firms, including Chevron Corp., Exxon Mobil Corp. and Valero Energy Corp., extend their influence, some state officials warn that this controlling alliance has raised the likelihood of price manipulation.

These worries have fueled the progress of a new bill, SB 448, approved by the state Senate recently. Introduced by Sen. Mark Leno (D-San Francisco), it would create a consumer watchdog to investigate suspicions of fixing oil prices, empowering state officials to analyze data they are already receiving, while requiring the California Energy Commission to consult with state and federal agencies to create statewide recommendations aimed at combatting high and erratic fuel prices.

The need for this new law is clear. To date, despite increasing suspicion of market manipulation, neither state nor federal officials have had an effective means to track down the culprits, while the agencies such as the FTC have had little success in holding the oil industry accountable.

Alleged price manipulation

In one of the few cases that has gone to trial, five oil speculators – two based in California – allegedly amassed large positions at the key U.S. oil trading hub of Cushing, Okla., to create an impression of tight supplies in order to boost prices. They allegedly later took short positions and dumped the barrels back on the market, causing prices to plummet and taking more than $50 million in illegal profits from consumers in 2007-8, before being charged with price manipulation three years later.

Such cases are rare because they’re so hard to spot, and even harder to enforce. Regulators need more tools and power – like those provided by Leno’s bill – to protect consumers from these shenanigans and also to ensure that there’s a level playing field for emerging, cleaner and innovative transportation technologies.

Fortunately for Californians, our state now has plenty of new upstarts – including electric and gas-fueled vehicles and alternative fuel suppliers – ready to loosen oil’s grip, offering consumers new choices. In fact, California now has the highest number of electric-vehicle charging stations in the country, while the L.A. area hosts America’s largest concentration of natural gas fueling stations.

This is an important start, but our state’s policies must continue to reflect support for innovation, a diverse fuel supply and a healthy economy, so that companies like ours and my customers can have a choice as to whether every summer has to start with bad news at the pump.

Charlie Feder is owner of Rossmoor Pastries, a 50-year-old Signal Hill bakery serving Los Angeles, Orange and Riverside counties.