California is poised to put lid on oil profits to lower gas prices, but it could backfire
Californians pay $1.73 more per gallon of gas than the national average, and policymakers are pointing fingers as they decide who to blame.
The California Energy Commission (CEC) has set its sights on the oil industry as it mulls over whether to implement a cap on oil profits in an attempt to lower prices at the pump.
Meanwhile, other U.S. governors and oil companies warn regulatory overreach is what brought on high oil prices in the first place.
As of June 2023, the CEC has the authority to create a margin cap that would potentially penalize oil companies. The CEC is currently deciding whether to move forward with the cap right now as fuel prices continue to surge.
Nevada Gov. Joe Lombardo warned California’s profit cap could have ‘unintended consequences’ in a letter sent to California Gov. Gavin Newsom Tuesday.
“While we have no details on what this might look like, I’m concerned that this approach could lead to refiners either constraining supplies of fuels to avoid a profit penalty or even leaving our shared fuel markets entirely,’ wrote Lombardo.
Should the scenario Lombardo warns of play out, gas prices could rise even further in both states as the supply of oil dwindles. Currently, 88 percent of Nevada’s fuels come from California.
Lombardo has asked for an assessment of the potential impacts of the profit cap across the western United States.
A spokesperson from Newsom’s office told Politico Lombardo is ‘parroting talking points’ and appeasing the interests of his donors: oil companies.
“He knows full well that oil refiners are driving up gas prices and making massive profits — harming residents of both of our states. Price spikes are profit spikes, and California is holding Big Oil accountable,” said Newsom spokesperson Alex Stack.
The oil industry chimes in, calling the cap “ill-defined and arbitrary”
Chevron issued its own response on May 22, expressing concerns about gasoline supply and refinery investment levels. They’ve recommended California address the ‘real causes of high gasoline’ before implementing a profit cap.
“Any effective solution begins with understanding how we got where we are: decades of restrictive state policies that have caused investment dollars to flee California’s refinery sector,” Chevron’s official response reads.
It’s supply issues, not price gouging, that drive California’s high prices, according to Chevron.
The company has cited CEC data showing more than 60 percent of the refineries opened in California during the last 100 years are now closed or idle. You can’t expect that kind of infrastructure drop without a price rise, says Chevron.
“If 60 percent of quick-service restaurants closed with a steady demand, an increase in the price of a quick hamburger would be expected,” explains Chevron in its statement.
Whether it’s big burger or big oil, supply and demand dynamics don’t always play out exactly how we think. The CEC is expected to decide whether to implement a profit cap by the end of 2024.