California AG sues gas firms for pricefixing
California Attorney General Xavier Becerra sued two “multinational gasoline firms” for allegedly manipulating California’s gas prices after an explosion at an ExxonMobil refinery in February 2015.
The suit alleges that Vitol Inc., SK Energy Americas Inc. of Houston and the latter’s South Korean parent company SK Trading International “took advantage of the market disruption” following the explosion “to engage in a scheme to drive up gas prices for their own profit.”
The suit, filed Monday, doesn’t quantify the
impact on prices the alleged scheme had, nor how much it may have contributed to the socalled “mystery surcharge” that Californians pay for gasoline compared to the rest of the country.
The refinery accounted for about 10% of the state’s supply of gasoline and the shortage sparked a price spike. After the explosion, “the lead traders for both Vitol and SK, who were friends and former colleagues, reached agreements with each other and with third parties as part of a scheme to manipulate, raise, fix and tamper with the spot market price of gasoline using various tactics.
“They also entered in agreements with each other to share the profits and disguise or hide the nature of the scheme,” according to the suit filed in San Francisco Superior Court in San Francisco. Beccera alleges violations of the Cartwright Act and unfair competition law, and he is seeking an injunction and monetary damages. Many parts are redacted.
“In the most egregious examples, Vitol and SK were able to manipulate Regular and Premium prices so effectively that those prices moved higher or stayed higher to a degree that is nearly inexplicable when compared to” prevailing supply and demand, it said.
Vitol denied the allegations. Following the 2015 explosion, “Vitol aided the California markets by importing gasoline into the state, supplying refiners and other companies at competitive market prices, and managing risk using routine commercial practices. Vitol’s actions were consistent with customary market practice and fully compliant with all applicable laws,” it said in an email. Vitol “engaged transparently” with Becerra’s investigation and believes the suit “lacks merit,” it said. Vitol is a Houstonbased subsidiary of a Dutch company, Vitol Holdings.
SK did not return a request for comment. The suit does not name OPIS nor any gasoline retailers as defendants.
In a Monday news conference, Becerra said the details were “highly technical” and “highly convoluted,” but the perpetrators allegedly tried to manipulate pieces by reporting false or misleading trades to the Oil Price Information Service. Better known as OPIS, it serves as an industry pricing benchmark used by buyers and sellers in California, the suit says.
The alleged scheme likely ended in late 2016, the suit said. It does not say by how much, and for how long, it may have raised prices. If it increased prices by 1 cent per gallon in 2015, that would mean there was a $150 million violation of the law, Becerra said in a news conference. “We believe it caused more than a 1 cent increase and for more than one year,” he added.
The alleged pricefixing scheme could have contributed to a price spike that followed the explosion, but it cannot fully explain the “mystery surcharge” that Gov. Gavin Newsom asked Becerra to investigate in October, when California gas prices surpassed $4 a gallon.
With oil prices plunging, the average price in California this week is $2.745, but that’s still almost $1 higher than the national average of $1.784, according to AAA.
If you take California out of the national average, our prices are generally about $1 per gallon higher than other states, UC Berkeley economist Severin Borenstein said.
About 71 cents of that difference is a result of higher sales and gasoline taxes, the state’s special blend of gasoline, an underground storage tank fee and environmental costs unique to California. The remaining 30 cents or so is a mystery.
The alleged scheme “may explain part of the 20152016 increase (in prices.) It’s unlikely that it explains the last few years and what we are seeing now,” Borenstein said.
Patrick De Haan, head of petroleum analysis with Gas Buddy, a pricetracking company, called the lawsuit “a bit of a circus to give motorists the false hope that there will be something concrete, some sort of protection that comes out of this. I think the odds are rather slim” based on what has been outlined in the suit.
“There doesn’t seem on the surface to be a whole lot here. It looks like there may be a bit of uphill battle that they have to prove this case. I think even if they do prove the case, it feels like this vastly overstated the effect (the alleged scheme) had on Californians,” De Haan added.