California accuses oil industry of price hikes, Valero hits back

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Valero hit back at the California Energy Commission (CEC) last week after the agency asked oil refinery executives to explain why, despite falling crude oil prices, oil prices petrol soared.

“[C]crude oil prices are down and industry profits are up, but gasoline prices rose a record $0.84 a gallon in 10 days in California, a difference of 2 $.50 from U.S. prices,” CEC President David Hochschild wrote in a Sept. 30 letter to leaders. “This degree of divergence from domestic prices has never happened before, regardless of the planned or unplanned refinery maintenance, and no explanation was provided. The oil industry owes Californians answers.”

FILE: A sign is displayed outside a Valero gas station on April 26, 2022 in San Rafael, California. (Justin Sullivan/Getty Images/Getty Images)

Hochschild accused the executives of failing to provide an “adequate and transparent” explanation for the price spike. He noted that the industry’s “lower than normal” gasoline inventories appear to be a contributing factor to the tighter gasoline market that has pushed gasoline prices higher over the past week.

Hochschild demands that industry leaders explain why gasoline prices have risen “despite a sharp drop in global crude prices, no significant unplanned outages at refineries in the state, and no increase in taxes or royalties from the state”.

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Hochschild asked what the state of California could do to address the logistics or other obstacles that have contributed to the price hike. He also demanded that refiners explain why they supposedly dropped inventory levels despite “months or even years” of planned maintenance taking place.

In response, Valero State Vice President of Government Affairs Scott N. Folwarkow denied any allegations of “pricing conspiracies” among oil refineries, pointing out that a federal judge dismissed another case. finding no basis.

Instead, Folwarkow said the market price was determined by supply and demand, coupled with “government imposed costs and specifications”.

He noted that Valero had scheduled maintenance activities, but said the company had planned accordingly to meet its contractual obligations to its customers.

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Folwarkow blamed low inventories on growing demand and tight post-COVID supply. He said the higher prices in California than the rest of the United States were tied to the state being “the most expensive operating environment in the country and (being) a very hostile regulatory environment for refining.” .

“California political markers knowingly enacted policies with the expressed intent of eliminating the refinery sector,” he said. “California is forcing refiners to pay sky-high carbon cap-and-trade fees and to charge gasoline the cost of legal carbon fuel standards.”

A California gas station is seen in May

A gas tank driver delivers 8,500 gallons of gasoline to an ARCO gas station in Riverside, Calif. on Saturday, May 28, 2022. (AP Photo/Damian Dovarganes/AP Newsroom)

He argued that state policies have made it difficult to increase refining capacity and have prevented supply projects aimed at reducing refinery operating costs.

FOX Business has contacted Valero and the CEC for additional comment.

“The addition of additional costs, in the form of new taxes or regulatory burdens, will only further strain the fuel market and negatively impact refiners and ultimately these costs will be passed on to California consumers,” he said.

Gas prices soared across the country this summer due to high inflation, Russia’s invasion of Ukraine and continued global supply chain disruptions.

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But while gas prices have recovered somewhat nationally, they have continued to climb in California, hitting an average of $6.39 per gallon on Friday, $2.58 above average. nationally, according to AAA.

California has the nation’s second-highest gas tax and other environmental rules that drive up the cost of fuel in the nation’s most populous state. Still, Newsom said there was “nothing to justify” a price difference of more than $2.50 a gallon between California gas and prices in other states.

As Valero’s letter was made public on Friday, California Governor Gavin Newsom said he would call a special session of the state legislature in December to pass a new tax on oil company profits to to punish them for what he called “raising rank prices”.

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It’s unclear how Newsom’s proposed tax would work. Newsom said he was still working out the details with legislative leaders, but said Friday he wanted the money to be “returned to taxpayers,” possibly using the tax money to pay for more refunds.

The Associated Press contributed to this report.

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