Experts Push Back on Politically Motivated Price Gouging Allegations, Again

The mixed messages on domestic energy production from the Biden administration continue, this time, echoed by California Governor Gavin Newsom as gas prices inch higher across the country and surge in California.

Mixed Messages from the White House

Last week, President Biden made the unfounded suggestion that oil companies would use Hurricane Ian to raise prices. At the same time, top White House economic and energy policy aides met with leaders from top U.S. refining companies – in theory, in good faith – to discuss the impact of the natural disaster on gasoline supplies.

The price gouging conversation in Washington cooled slightly over the past few months as gasoline prices fell across the country. But in recent weeks, as a multitude of factors have caused the price of gasoline to increase in certain regions around the country, the administration turned back to a familiar scapegoat – the oil and natural gas industry.

During a speech last week, President Biden warned:

“Do not — let me repeat, do not — do not use this as an excuse to raise gasoline prices or gouge the American people. My experts informed me the production of only about 190,000 barrels a day have been impacted by the storm thus far. That’s less than two percent of the United States’ daily production impacted for a very short period of time. This small temporary storm impact on oil production provides no excuse — no excuse — for price increases at the pump. None.”

President Biden’s assessment of the total number of barrels of oil directly impacted by Hurricane Ian might be accurate, but it doesn’t tell the full story.

While only some production was impacted in the Southeastern U.S., the region experienced power outages and localized demand surges as residents rushed to evacuate. Last week, the American Fuel and Petrochemical Manufactures told Fox Business that power outages in Florida impacted retail gas stations, too:

“Already in Florida, some key areas are functioning with roughly 20 percent of retail stations either out of gas or out of power.”

Elsewhere in the country, a refinery fire in Ohio in late September caused gas prices to jump in Indiana and surrounding states due to reduced regional gasoline supply. Refinery maintenance and unexpected outages have also caused localized gas price increases in California and in the Pacific Northwest, despite a persistent, nationwide downwards trend in prices.

Price Gouging Debunked in California

President Biden and Democrats in Washington aren’t the only ones pushing the price gouging narrative. Last week, California Governor Gavin Newsom claimed that oil and natural gas companies were price gouging Californian consumers and called for a windfall profit tax on producers.

Experts were quick to dispute Newsom’s claims in the press. University of Houston Energy Fellow Ed Hirs firmly disagreed with Governor Newsom’s price gouging allegations:

“The governor’s kind of playing fast and loose with the rhetoric and the facts. It really is an issue of supply. If there’s not enough gasoline being produced in California, it has to come from someplace else.”

So, why isn’t there enough gasoline being produced in-state? In California, both planned and unexpected refinery outages have decreased the available supply of the state’s special, low-emission gasoline blend.

Severin Borenstein, the director of UC Berkeley’s Energy Institute at the Haas School of Business, told the Los Angeles Times how these circumstances leave California vulnerable to volatile gasoline prices:

“The reality is that as we phase out gasoline, we’re going to have fewer and fewer California refineries that make this blend. And that’s going to make us more and more vulnerable to any one refinery, if they go out unexpectedly, to see a big price shock.”

Moreover, just this week, Judge Jinsook Ohta of the U.S. District Court for the Southern District of California dismissed price fixing charges brought against the major refiners operating in the state. In a 103-page opinion, Judge Ohta describes how geography, infrastructure, and policy have turned California into a “gasoline island” that is highly dependent on a small set of refining companies for consistent supply:

“In California, a small group of refiners control the entirety of gas production in the state. … The California gas market largely depends on this small group of in-state refiners because California is a ‘gasoline island’ isolated from other sources of supply.

“While defendants would certainly have an economic motive to act in the manner alleged by plaintiffs, that alone cannot establish an antitrust violation.”

Bottom Line: The simple logic of Judge Ohta’s opinion also applies at the federal level – even if energy producers have a market incentive to sell energy at a higher price rather than a lower one, that does not mean energy producers are driving up the prices of their products. This most recent back-and-forth between the Biden administration and energy producers is just one of many. Over and over, Energy in Depth has highlighted the numerous experts from academia, policy, and the media who have all unequivocally rejected the claim that energy companies are using the current crisis – whether it be Russia’s invasion of Ukraine or a natural disaster – to price gouge Americans.

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