by Dale Kasler
February 28, 2007
California’s gasoline market is so fragile that a fire at an oil refinery in the Texas Panhandle could help boost prices above $3 a gallon.
The average statewide price shot past $2.80 this week, the result of rising consumption, a fresh surge in crude oil costs and a host of planned and unplanned refinery outages, including the fire in Texas. Prices have risen 31 cents in the past month — and are nearly 50 cents higher than the rest of the country, AAA says.
San Francisco’s average price hit $3.01 a gallon Tuesday, the highest of any major market in the state, and analyst Denton Cinquegrana said the rest of California could hit $3 before long. Consultant David Hackett of Stillwater Associates in Irvine said he thinks prices will go up another 5 cents or so.
Cinquegrana said Californians are unlikely to repeat the roller-coaster experience of last year, when prices hit a record $3.38 in May and then tumbled nearly $1 in the next five months.
But California’s supply situation remains delicate and subject to volatility. Analysts said gas production has been hurt by a January fire at Chevron Corp.’s Richmond refinery and a glitch last week at Exxon Mobil Corp.’s Torrance plant.
At the same time, California refiners have been wrapping up planned maintenance projects and going through the annual late winter conversion to summertime fuel blends, which are tougher and costlier to make. That puts an added squeeze on production.
Add to this two factors that lead to higher prices, in California and across the country: – The price of crude oil has risen about $10 a barrel in the past six weeks. Oil futures closed at $61.46 a barrel, up 7 cents, on the New York Mercantile Exchange. Each $1 increase generally means a 2.4 cents-a-gallon increase at retail. – Motorists themselves are putting more upward pressure on prices. For the four weeks ending Feb. 16, gas and diesel consumption was up nearly 4 percent from a year ago, according to the U.S. Department of Energy.
"Demand has been relentless in the U.S. as a whole," said Cinquegrana, markets editor at the Oil Price Information Service in New Jersey.
Yet California prices have risen more quickly than in the rest of the country. The traditional "spread" of 20 cents to 30 cents, caused in part by California’s tougher fuel specifications, has grown to a whopping 46 cents.
One consumer advocacy group, Santa Monica’s Foundation for Taxpayer and Consumer Rights, called this week for "immediate action by Congress and California lawmakers to regulate gasoline supplies and curb price-gouging by oil companies and refiners."
The foundation added, "If oil companies won’t increase their refinery capacity and gasoline storage in the state, government must do it."
But industry spokesmen said California’s high prices are the result of legitimate supply constraints that can’t be easily remedied.
California’s unusually tough, hard-to-duplicate fuel formula, designed to reduce air pollution, make it difficult to find replacement supplies when one of the state’s 14 refineries suffers a problem, they say. And government red tape has hindered efforts to increase refining capacity in the state, said Joe Sparano, president of Sacramento-based Western States Petroleum Association.
The Feb. 16 fire at Valero Energy Corp.’s refinery in Sunray, Texas, is one of the most vivid examples of how wildly California prices can fluctuate.
California gets no gas from Sunray, yet prices have risen faster than in Texas. The reason: Phoenix relies heavily on the Sunray plant. With that supply cut, Phoenix turned to refiners in Southern California for backup, said Hackett of Stillwater Associates.
"An outage in west Texas can indeed affect California’s supply-demand balance," Sparano said. "It’s a real-world occurrence."
Valero said Tuesday the refinery could resume "partial plant operations by early April."
The rise in gas prices comes as figures released this week showed that the U.S. demand for fuel-efficient hybrid vehicles started to slow last year.
According to data compiled by R.L. Polk & Co., 254,545 gas-electric hybrids were sold last year, a 28 percent increase. That was the second lowest percent increase since 2000.
One reason for the slowdown was the reduction in tax credits on some models. In addition, car-makers "still have obstacles to overcome to prove the merit of owning a hybrid, including educating customers about developing hybrid technology; debunking the myth that hybrids are only needed when gas prices rise and general apathy or risk-averse attitudes toward the relatively new-to-market technology," Polk analyst Lonnie Miller said in a press release.
Californians bought 26.5 percent of all hybrids, far more than any other state, the Polk study said.