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Carl Kanowsky: Are we consumers victims of a gas monopoly?

It's the Law

Posted: September 2, 2011 1:55 a.m.
Updated: September 2, 2011 1:55 a.m.
 

From time to time, I’m called upon to advise my clients on antitrust issues. Upon reflection of my daily life, I wonder if I’m, along with all of you, a victim of a monopoly.

The issue is: How much we pay at the pump for gas.

Yes, there are numerous things impacting the supply and price of oil. There’s the Arab Spring freedom movement, with countries such as Libya are devoting more to self-preservation than shipping oil. 

And we’ve all heard how the OPEC countries control how much oil is actually produced. There’s also the reality that China and India consume much more oil than they historically have, causing a constriction on the amount of oil available worldwide.

So these factors can help to explain why oil has gone as high as $115 per barrel in the past year. But, guess what, oil has dropped dramatically from its high in May to a low of about $79 to $84 per barrel over the past week. That’s a drop of between 27 and 31 percent.

And what are we shelling out at the pump here in California during the same period?

When oil was at its highest, gas was $4.26 a gallon. To match the oil-price decrease, we should be paying between $2.98 and $3.11 per gallon.

Anybody finding gas that cheap?  If so, let’s spread the news.  But according to www.californiagasprices.com, we’re paying today an average of $3.70 to $3.80, which is a drop of just 11 percent. 

Who’s keeping the extra 19 percent?

History’s great. It can confirm theories or cut them off at the knees. My theory is that gas retailers justify raising gas prices when the price of crude spikes. But do they make sure that pump prices trend back down in the same fashion? History shows us that they do not. 

Nasdaq.com has a graph that shows a year ago oil was just about the same price as it is now. Gasoline prices, unfortunately, do not follow this. A year ago, we were paying $3.08 per gallon. So, why are we paying 60 to 70 cents more per gallon as compared to last year?

I’ve also been baffled by another phenomenon that I don’t understand. I see the posted price at the gas station in the morning. Then, when I go home that evening, if oil’s gone up, then invariably the price at the pump has also gone up.

Why is that? Was the gas station charged more for the gas that it already had in its underground tanks? Does Exxon or Arco charge the merchant a variable rate set hour by hour for product previously delivered? Of course not.

That would be like Vons calling to tell you that the box of Wheaties you bought this morning for $3.75 is now $4.25 because wheat went up that day.

So it’s clear that gas prices go up when oil prices do.

The reverse of that trend would be that gas prices would be slashed in sync with oil prices. But that, as we all know, does not happen. 

For instance, the price of crude went from $99 per barrel on about July 29 to $79 by Aug. 9. That’s a 20 percent drop. Gas prices did not track this.

In fact, during that period, gas prices remained essentially unchanged. There are other examples of this, such as the oil-price slippage from May 1 to 5 without a corresponding drop in gas prices.

Dictionary.com defines monopoly as “a control (of a commodity) that makes possible the manipulation of prices.” 

If one of my clients tried to do the same to his customers as what consumers have experienced with gas prices, he’d be hit immediately with an antitrust lawsuit. 

Is there some reason that isn’t happening here? 

Carl Kanowsky of Kanowsky & Associates is an attorney in the Santa Clarita Valley. He may be reached by email at cjk@kanowskylaw.com. Kanowsky’s column represents his own views, and not necessarily those of The Signal. Nothing contained herein shall be or is intended to be construed as providing legal advice.

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