Debunking The Myth Of Oil Refiner Price-Gouging In California

Authored by Robert Rapier via OilPrice.com,

• California’s high gasoline prices are primarily driven by state taxes and fees, not excessive profits by oil refiners.

• Data from the California Energy Commission reveals that oil refiners often operate on razor-thin or even negative profit margins.

• Policymakers should focus on reforming California’s tax and regulatory structure to address high gas prices instead of targeting oil companies.

In 2022, California Governor Gavin Newsom signed SB-1322, the Oil Refiner Price Disclosure Act, into law. The legislation was hailed as a major step toward transparency, requiring refiners in California to report detailed monthly data on their gasoline profit margins. Specifically, refiners must disclose:

• The cost of crude oil purchased

• The wholesale price of gasoline sold

• The gross and net profits earned per gallon of refined gasoline

Supporters, including consumer advocacy groups like Consumer Watchdog, argued that SB-1322 would expose “excessive profits” earned by refiners and hold them accountable amid California’s notoriously high gasoline prices. In fact, as captured in this recent TikTok video from Matt Randolph, Gavin Newsom continues to claim that oil companies are fleecing California consumers.

However, a little over two years after signing the bill into law, the data tells a different story.

Far from uncovering windfall profits, the disclosures reveal razor-thin — and often negative — margins for refiners in the state.

Gross vs. Net: The Misleading Narrative

Earlier this year, several public interest groups pointed to California Energy Commission (CEC) data showing that refiners earned gross margins (which these groups mischaracterized as “gross profits”) exceeding $1 per gallon in 2023. They urged the CEC to impose a price-gouging penalty ahead of the summer driving season.

But this interpretation missed a critical point: gross margins do not equal net profits. The CEC defines Gross Gasoline Refining Margin as the wholesale gasoline price minus the cost of crude oil. To derive the Net Gasoline Refining Margin, refiners must subtract operational costs, which averaged just over $1 per gallon during the reporting period.

Since California began reporting net margins in June 2023, the data paints a very different picture than that promoted by supporters of anti-gouging measures. Over the past 11 months that have been reported, refiners posted a positive net margin in only six months. The average net profit margin from June 2023 to April 2024 was just $0.09 per gallon — hardly the excessive profits that critics claim.

Follow the Money: Where Do Gasoline Dollars Go?

If refiners are not the primary cause of California’s sky-high gasoline prices, where does the money go? According to CBS 8 San Diego, Californians pay roughly $1.40 per gallon in taxes and fees — the highest in the nation. Here’s the breakdown:

• State Excise Tax: 57.9 cents per gallon (as of July 2024)

• Federal Excise Tax: 18.4 cents per gallon

• Cap-and-Trade Program: 23 cents per gallon

• Low-Carbon Fuel Standard (LCFS): 18 cents per gallon

• Underground Storage Tank Fee: 2 cents per gallon

• Sales Tax: ~3.7% of the retail price

These taxes and regulatory fees combined with California’s stringent fuel standards — which mandate unique summer and winter gasoline blends — drive up prices far more than the refiners’ net margins.

Conclusion: The Real Culprits Behind California’s High Gas Prices

SB-1322 may have been designed to shine a light on oil refiners, but its findings reveal a fundamental truth: California itself profits more from gasoline sales than the refiners do. When operational costs are factored in, the profits earned by refiners are minimal.

If policymakers and consumer groups are serious about tackling high gasoline prices in the state, they would be better served scrutinizing California’s tax and regulatory structure instead of targeting the refiners.