Excerpted from Politico, April 2024:
What was your takeaway from yesterday’s meeting on the potential profits penalty for oil companies?
Milder: We’ve seen prices spike at the same time as the cost of crude oil went down. So, it’s not like crude is more expensive or these other exogenous factors are the cause. The industry profits have been going up. Price spikes are profit spikes.
Should we expect to see any impacts on gas prices this summer from actions you’ve already taken?
Milder: I would hope that bringing scrutiny to how the spot market can move 50 cents on one trade or bringing the scrutiny to volatility or illiquidity in the spot market, would have a positive effect. But I do think this is a highly concentrated market, and that this type of change takes time.
The oil industry argument is that anything California does to reduce in-state extraction increases dependence on more-expensive imports. What do you say to that?
Milder: I’m pretty skeptical of that argument. There’s a global market for crude oil. So, California crude competes with other sources of crude that the refineries process. We haven’t seen that crude prices got more expensive because of something happening in California extraction and therefore gas got more expensive. Crude prices are not going up during many of the price spikes, or at least not as much as the refinery margin.
With your specific proposals so far, how do you know that they won’t end up inadvertently driving up prices?
Milder: The margin penalty is a CEC decision. DPMO is giving input on it, but we are not going to be deciding that. My thoughts are, how can a penalty potentially blunt price spikes? How can a penalty either help to increase supply or recoup some of these excess profits that are going to industry?
Normally high prices attract more supply and a competitive market solves the issue. We have enough data points at this point to see that persistent price spikes in California have not been attracting enough supply. And so one question is, why not? Are our suppliers, both refiners and importers, responding to high prices with competitive actions, and are they bringing in adequate supply as a result? That’s part of what DPMO will be scrutinizing in this process.
Two Bay Area refineries are transitioning to biofuels. How will that affect prices?
Milder: The transition is not always going to be smooth, because when a refinery converts from gasoline, you don’t just lose 5 percent or 10 percent gradually, you lose all of the gasoline they’re producing when they do it the way that they have. So you may see some market volatility as a result of these conversions.
At the same time, I think if the other refiners are behaving responsibly when it comes to their own planned and unplanned maintenance, I don’t think that the closure of those two refineries, long term, sets us up in a terrible situation.
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