Valero’s Scorching Response to California’s Claims That Big Oil Is Price Gouging

Gas prices -- seen here at more than $7 a gallon are displayed at a Chevron gas station in Mill Valley, Calif., on Oct. 3, 2022 -- are among economic uncertanities that will be a major influence on how Americans vote in Nov. 8 midterm elections. (Justin Sullivan/Getty Images)

Valero Energy Corp. has responded to the California’s Energy Commission’s (CEC) accusatory letter which claimed that the oil industry raised prices in California while global crude prices declined, and in the absence of any unplanned refinery outages, and no increases in state taxes or fees.

“[C]rude oil prices are down and industry profits are up, yet gas prices have increased by a record $0.84 per gallon in 10 days in California—a $2.50 difference compared to U.S. prices,” CEC Chair David Hochschild wrote in a Sept. 30 letter (pdf) to industry executives. “This degree of divergence from national prices hasn’t happened before, regardless of planned or unplanned refinery maintenance, and no explanation has been provided. The oil industry owes Californians answers.”

Hochschild said that the price increase seen over the past 10 days were “unacceptable,” and widened the gap between national prices. He accused executives for not passing on savings to consumers despite crude prices “dropping nearly $10 per barrel” from August.

The “unplanned refinery outage” and an “uptick in planned maintenance” do not justify the “significant increase in retail prices,” as refineries should have enough inventories to make up for these circumstances.

“But this year, refineries have allowed gasoline inventories to drop over the past several weeks to below the bottom of the seasonal five-year high-low band,” which appears to have contributed to price hikes, he said.

Valero’s Response

Valero responded (pdf) on Oct. 3 that “market drivers of supply and demand, together with government-imposed costs and specifications, determine market price,” and not the fuel industry specifically, according to Scott Folwarkow, vice president for state government affairs.

Folwarkow confirmed that there was a planned “maintenance activity” at one of Valero’s California plants, but the refinery is working at “as close to full rate as possible.” Regarding low inventories, “we believe it is because post-COVID demand is growing and supply is limited,” he said.

“With a very short supply market, inventories are pulled down to satisfy the demand. In fact, the commission would not want to see refiners holding inventories in a tight market.”

As to why California prices were higher compared to the rest of the country, Folwarkow said that the state was “the most expensive” to run operations in, as well as that there is a “very hostile regulatory environment for refining.” The policymakers are “knowingly” adopting such regulations with the “expressed intent of eliminating the refinery sector.”

The state mandates refineries to pay “very high carbon cap and trade fees and burdened gasoline with cost of the low carbon fuel standards.” Many refineries have shut down as a result of these measures, and this has led to disrupted supply chains.

Besides being challenging and imposing some of the most aggressive environmental regulatory requirements in the world, Folwarkow said, “California regulators have mandated a unique blend of gasoline that is not readily available outside of the West Coast.” The state effectively remains “isolated” from fuel markets of the central and eastern United States.

He ended the letter with a warning that adding further costs will “further strain the fuel market and adversely impact refiners and ultimately those costs will pass to California consumers.”

Refining Profits, Newsom’s Tax

According to ConsumerWatchdog, Valero has made profits of more than $4.5 billion through refining since the Texas-based company bought its second California refinery in 2002. The profit margins averaged 37 percent higher on each barrel of oil refined in California when compared to other refineries in the country.

California Democrat Gov. Gavin Newsom said last week that he’ll call a special session of the state legislature in December to address the “rank price gouging” of the oil industry, and try to pass a new tax on profits made by the companies. “It’s time to get serious. I’m sick of this,” Newsom said. “We’ve been too timid,” according to the Associated Press.

PBF’s Response

Paul David, senior vice president of PBF Energy, echoed some of the sentiments of Valero regarding California’ policies and regulations, and their plant maintenance operations.

“Since 1980, approximately one million barrels per day of crude oil-refining capacity has been permanently shut down in California,” David said in a letter (pdf) on Oct. 3. “Specifically, the August 2020 shutdown of a 166,000 barrels per day East Bay refinery, compounded by reduced imports in 2022, should be considered as a potential contributing factor to current supply disruptions and lower gasoline inventories that have been blamed for price increases.”

David blamed refinery closures and California-specific fuel blends as some of the reasons for price hikes following the COVID-19 pandemic, when demand began increasing.

While regular gas prices averaged $3.919 per gallon nationally, California’s prices were over 61.5 percent higher, at $6.330, as of Oct. 10. A year ago, the price was $4.440 in the state—much closer to the 2021 national average of $3.269.

[https://gasprices.aaa.com/?state=CA]