The California gasoline conspiracy: plaintiffs' allegations

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Case name and reference

Persian Gulf Inc v BP West Coast Products LLC, et al (3:2015cv01749)

Richard Bartlett, et al v BP West Coast Products LLC, et al (3:2018cv01374)
CourtUS District Court for the Southern District of California
Parties

Alon USA Energy

BP West Coast Products

Chevron USA

David Rinaldi

Equilon Enterprises

Exxon Mobil Corporation and ExxonMobil Refining & Supply Co

Joshua Ebright

Paul Lee

Persian Gulf

Phillips 66

Tesoro Refining & Marketing Company

Valero Marketing and Supply Company
Cause of action

Section 1 of the Sherman Act

The Cartwright Act

Section 16700 of the California Business and Professions Code

Section 17200 of the California Business and Professions Code

In Persian Gulf Inc v BP West Coast Products and Richard Bartlett et al v BP West Coast Products LLC et al, the plaintiffs' antitrust allegations are best understood within the context of California's supply chain and wholesale gasoline market.

California lacks direct pipeline connectivity to other major refinery centres (eg, the Gulf Coast and Pacific Northwest), effectively making it a ‘gasoline island’. Gasoline produced out of state can be imported by waterborne transportation, but this is relatively expensive. As a result of these supply constraints, the California gas market largely depends on in-state refinery production for its gasoline supply. However, the plaintiffs claimed that California’s gasoline market is highly concentrated, with the eight defendants controlling much of the refining capacity. In economic terms, this type of market structure is known as an oligopoly. Given this alleged market concentration, the actions of any one refiner would be expected to substantially impact the others. Finally, gasoline sold in the state must meet the California Reformulated Gasoline Blendstock for Oxygenate Blending standard, further constraining supply in the state. Given refiners’ limited production capacity and limited availability of external supply options, the court characterised California’s gasoline prices as “sensitive to events such as refinery shutdowns”.

Various reasons have been posited for the increase in gasoline prices, including the unique nature of California’s gasoline market. However, the plaintiffs contended that the spikes were instead the result of anticompetitive conduct among the state’s major gasoline refiners, which is said to have started in 2011:

Defendants, each and all, agreed, and entered into an agreement [...] by no later than August 1, 2011, to fix, maintain, or make artificial prices for gasoline sold in California.

In particular, the plaintiffs, in support of their price-fixing conspiracy, alleged that the defendants:

  • restricted wholesale gasoline supply in California by running their refineries below capacity, blocking imports and exporting gas outside of California in order to raise prices and increase profits;
  • used various strategies to manipulate public-facing gas prices, including through a ‘gentleman's agreement’, wash trades, selective price reporting and false public statements about refinery maintenance;
  • effected this conspiracy through frequent and systematic exchanges of confidential supply-related information concerning refinery maintenance, production, imports and exports;
  • cooperated to cover each other's supply shortages by trading gas on the spot market and utilising exchange agreements to trade barrels of gas instead of purchasing elsewhere at market rates; and
  • through these arrangements, collaborated rather than competed with one another in times of need, such as after the Exxon refinery explosion in 2015.

This is the second in a five-part economic analysis of the case. Part one can be found here.

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