There is no shortage of explanations for why gasoline pump prices have soared to record highs. A Chevron refinery fire in Richmond, pipeline contamination, refinery maintenance, state pollution restrictions, retailer fears, buyer panic, California karma. 

Now, Senator Dianne Feinstein would like the federal government to see if, perhaps, the price spike has something to do with “malicious trading schemes in the California gasoline market.”  

In a letter to the Federal Trade Commission (FTC), Feinstein expressed dissatisfaction with the conventional wisdom. “Publicly available data appears to confirm that market fundamentals are not to blame for rising gas prices in California,” she wrote. 

Feinstein cited a report from Reuters that the nearly $1-a-gallon rise in California gasoline prices this past week “has many of the hallmarks of a classic short squeeze.” With stockpiles of fuel already reduced to their lowest in years, and refiners preparing to shift to production of less-restricted winter fuels,  the market was vulnerable to manipulation.

Reuters reported that multiple sources indicated that one major refiner, Tesoro, may have found itself short of fuel and needing to unexpectedly buy on the spot market. Individual traders, knowing that the market is going to get pushed, hold back to get a higher price, squeezing Tesoro.

Consequently, retailers are caught in the middle when faced with a markedly higher, seemingly short-term purchase price for gasoline they are probably going to have to sell at a loss when the spike ends. Some retailers choose not to buy supplies.      

Feinstein noted in her letter that gasoline production and stockpiles were nearly the same as a year before. The senator had called for an FTC investigation in August when gasoline prices spiked after a Chevron refinery fire, citing many of the same concerns.

The FTC is inclined to yield to individual states in these types of energy episodes, but Reuters speculated that the federal government could be interested if a connection was made between the California activity and a recent surge on the New York Mercantile Exchange (NYMEX).

Feinstein, in her letter, also urged the FTC to address systemic problems and encouraged it to set up a monitoring system that would gather data from the CFTC, the Energy Information Administration, the California Energy Commission, and private sources that is “vital to determine if trading activities reflect fraud, manipulation, or other malicious trading practices.”    

–Ken Broder

To Learn More:

Feinstein Wants Federal Probe of Record California Gas Prices (by Tiffany Hsu, Los Angeles Times)

Traders See Signs of Squeeze Behind L.A. Gasoline Spike (by Erwin Seba, Reuters)

Letter Calling for Investigation (Senator Dianne Feinstein)

Shortages Blamed for Soaring Gas Prices, but Output Is Down Just a Fraction (by Ken Broder, AllGov California)