February 15, 2013
When gasoline prices in California shot up to record levels last fall, the public was reasonably frustrated and the media and policy makers were eager to understand the root causes of the spike. Stillwater monitors crude oil and retail gasoline prices daily and we wrote extensively about this price spike on our blog. Our take on the price spike at the time was that low inventories caused by a confluence of unplanned refinery outages and planned refinery maintenance lead to a supply-squeeze that sent wholesale prices soaring. But a report issued by McCullough Research, an electricity consultant from Portland, Oregon, came to a different conclusion. The McCullough Report, entitled "May and October 2012 Gasoline Price Spikes on the West Coast," alleged that the price volatility was caused by market manipulation. The conclusions in the McCullough report led six U.S. Senators, including Barbara Boxer and Dianne Feinstein, to call on the Justice Department to investigate "possible market manipulation and fase reporting by oil refineries which may have created a perception of a supply shortage."
Today, WSPA released a report written by Stillwater, that directly contradicts the assertions in the McCullough Report. Our analysis found that the McCullough Report shows a lack of familiarity with the oil industry and the west coast gasoline market. We found that the report contains numerous errors and "relies on incomplete research, poor analysis and speculation around company motives to conclude that a 'federal agency should be given the regulatory authority to monitor and prevent the exercise of market power for oil'..."
In our "Response to McCullough Research Report" written for WSPA, Stillwater presents our own study of the price spike in question. Our analysis using public CEC data shows that rather than withholding supplies, as alleged in the McCullough Report, refiners increased utilization in response to the situation. Increased refinery utilization, coupled with Governor Brown's intervention to allow for the early transition from summer to winter gasoline blends ended the supply-squeeze and caused prices to drop.
We look forward to the Justice Department investigation into the 2012 gasoline price spike and hope that our analysis of the issue can aid in that effort.
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