‘Market manipulation’ may be driving higher gas prices in LA

Written by Danielle Chiriguayo, produced by Robin Estrin

A Shell station in Culver City charges $6.15 per gallon for regular gas, September 21, 2023. Photo by Amy Ta/KCRW

The average price for a gallon of gas in LA County has topped $6 for the first time in almost a year, according to AAA. Costs are also creeping up statewide, with drivers paying, on average, over 50 cents more per gallon compared to August.

AAA attributes the price hikes to refinery outages, supply cuts in Saudi Arabia and Russia, and recent flooding in Libya. However, it’s hard to square those reasons when the U.S. remains the biggest producer of crude oil in the world, and oil companies continue to enjoy record profits. 

Severin Borenstein, the faculty director of the Haas Energy Institute, tells KCRW that within the last month, the price of a barrel of crude oil went up by $10, which translates to about $0.25 per gallon. Meanwhile, gas in California costs about $1.20 more than the rest of the country, and $0.85 of that $1.20 accounts for state taxes and environmental costs. The other $0.35 of $1.20 is a mystery surcharge, says Borenstein. 

“This is a premium [that] California has been paying since about 2015, that the state has not gotten to the bottom of, and that has cost Californians about $50 billion since 2015,” he says.

What about the idea that gas prices are higher in summer? That’s not been the case recently, Borenstein points out. Typically, at the end of the summer, refineries switch to producing a winter blend of gasoline while they undergo maintenance. However, if too many refineries go down, Borenstein says there’s a shortage of gasoline. He believes that something else — that’s potentially suspicious — is going on.  

“We are now in a California gasoline market where two firms control about half the market, and five firms control over 90%. And so there is a real concern that this isn't just scarcity of gasoline, which should lead to high gas prices, because otherwise we're going to run out of gas. But it might be actually some sort of market manipulation.”

Still, there’s some good news, he suggests. Governor Gavin Newsom signed a bill that creates the Division of Petroleum Market Oversight, an independent watchdog within the California Energy Commission. The division is tasked with investigating high prices.