California trucking company sues Vitol, SK for inflating fuel prices
May 22, 2020
A California trucking company is suing three oil trading companies – Vitol, SK Energy and SK Trading International – for allegedly making illegal agreements that restrained competition, leading to artificially high fuel prices.
Pacific Wine Distributors has filed a class action lawsuit against Vitol, SK Energy Americas and SK Trading International Co. in a California federal court. The trucking company is accusing the energy companies of conspiring to artificially increase fuel prices in the San Francisco Bay Area and Los Angeles.
According to the lawsuit, the scheme took place shortly after an explosion occurred at the ExxonMobil refinery in Torrance, Calif., disrupting certain refining capacity. The energy companies exploited the incident to raise their prices.
David Niemann was hired as a senior trader for SK Energy in August 2014. Niemann was responsible for executing trades on the U.S. West Coast. He held a similar role at Vitol for about 10 years before working for SK Energy. At his time at Vitol, Niemann worked with Brad Lucas, who was the primary West Coast trader at Vitol. According to the lawsuit, the two men remained in contact after Niemann left Vitol for SK Energy.
On Feb. 18, 2015, a large explosion occurred at the Torrance refinery. According to the complaint, Niemann, Lucas and others reached agreements with each other and with third parties later that month to raise the price of refined gasoline in California. The refinery explosion would cover for their illegal efforts to increase the price of gasoline on the California spot markets.
Vitol and SK Energy engaged in trades between each other that were reported to the Oil Price Information Service.
OPIS is the most widely used reporting service in California, according to the complaint. Its daily West Coast Spot Market Report is the industry pricing benchmark used by both buyers and sellers in California. The trades between the companies were conducted for the purpose of inflating OPIS-published prices, Pacific Wine alleges. More specifically, they were designed to create the illusion of a supply/demand imbalance for refined gasoline. This would drive spot market prices to artificial highs during strategic pricing windows.
Vitol and SK Energy allegedly traded gasoline contracts with each other at artificially high prices early in the trading day. OPIS would then report artificially inflated purchase price to other market participants. An early purchase during a strategic trading window at an inflated price signals a supply/demand imbalance to the market. Consequently, spot market prices are artificially inflated.
The two oil trading companies allegedly executed “wash” trades to hide their scheme. The Chicago Mercantile Exchange defines a wash trade as “a form of fictitious trade in which a transaction or a series of transactions give the appearance that authentic purchases and sales have been made, but where the trades have been entered without the intent to take a bona fide market position or without the intent to execute bona fide transactions subject to market risk or price competition.”
“Defendants called their illegal agreements ‘joint ventures’ or ‘JVs’, but they were nothing more than secret agreements between purported competitors to artificially increase spot market prices for regular and premium gasoline in California,” the complaint states.
Consequently, those increased spot market prices were passed down to California consumers at the pump.
California is the third largest market in the world behind the U.S. as a whole and China, according to the lawsuit.
The lawsuit class includes anyone that purchased gasoline from a retailer in California from Feb. 18, 2015, through Dec. 31, 2016.” The number of class members could potentially number in the millions.
Pacific Wine’s lawsuit was filed just days after California Attorney General Xavier Becerra filed a similar lawsuit against the same companies for similar reasons.
“Californians are accustomed to casting suspicious eyes at gas pump prices,” Becerra said in a statement. “Whether prices are low or high, try to convince an American that someone isn’t gaming the system. I won’t, because today I’m taking two multinational gas companies to court to prove they manipulated gas prices to illegally enrich themselves at the cost of California consumers. Price gouging, whether it’s toilet paper or gasoline, stinks. It’s greed that hurts grandma, the Good Samaritan and everyday Americans. Every once in a while we get to fight back. That’s what today’s lawsuit is about. No one is above the law.”
Last October, Gov. Gavin Newsom asked Becerra to investigate a “mystery surcharge” on gasoline imposed on the state. Newsom’s request came on the same day the California Energy Commission released a report regarding increased gasoline prices in the state.
According to the commission’s report, California is paying up to 30 cents per gallon more than other states. Newsom’s letter states that “big oil” is “misleading and overcharging” Californians. Albert Lundeen, California Energy Commission spokesman, confirmed to Land Line that the report is about gasoline prices only and does not look into diesel.