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Friday, Sep 30, 2022
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Gas Prices on the Rise in Time for Summer Vacation

Gas Prices on the Rise in Time for Summer Vacation

By DAVID GREENBERG

Staff Reporter

Motorists still plan to drive on their summer vacations, even though the average cost of gasoline could hit the $2.50-per-gallon mark during the July and August peak user months.

“This is new territory for all motorists in California and in the rest of the country. We don’t expect prices to decline very much through the summer,” said Jeffrey Spring, a spokesman for the Automobile Club of Southern California.

Industry watchers expect local gas prices to peak at $2.30 to $2.40 per gallon by Memorial Day, only to flatten out until July, when they will increase again.

A survey by the Automobile Club found that the average price in the L.A.-Long Beach area was $2.26 per gallon as of May 13, compared with $1.89 for the like period a year ago.

There have been reports that some gas stations are charging $3 per gallon. But those are believed to be isolated cases and will not be the norm this summer.

“There is a perception, a mania and hysteria that this is the apocalyptic summer where we won’t have enough fuel,” said Tom Kloza, chief oil analyst for Lakewood, N.J.-based Oil Price Information Service. “There is just no way that would be the average price. Somebody in Malibu or Beverly Hills might post a $3 price, the same way somebody would charge $8 for a cappuccino because they have a tony little restaurant.”

The increased costs are largely blamed on rising worldwide demand and the reluctance by OPEC countries to increase production to keep up.

In California, where gas prices are highest in the nation, oil company consolidation over the past 14 years and a change to a just-in-time delivery system have minimized surpluses available when supplies come up short.

Will Woods, executive director of the Independent Gas Station Owners Association, a Laguna Hills trade group representing 300 retails and auto repair shops, blamed the regional shortage on the oil companies’ 13 California-based refineries.

Until two or three years ago, they produced as much gas as possible, so the surplus could keep prices in check when one or more refineries had to temporarily close down or shortages arose from other major sources, such as Alaska (which accounts for 35 to 40 percent of the state’s supply).

Today, the refineries create a significantly smaller surplus. So the oil companies that own them are forced to buy additional gasoline at increased prices from competitors when demand exceeds supply.

“Demands are increasing and the oil companies have finally figured out that just-in-time delivery works to their advantage,” said Woods. “They turn around and pass the extra cost on to the customer.”

No conspiracies

Although all 13 refineries were up and running last week, Shell Oil has announced plans to close its Bakersfield plant in September.

In the past, critics have accused the oil industry of manipulating prices, a charge that Shell Oil has denied. Last week, California Attorney Gen. Bill Lockyer said that the record prices were not a result of wrongdoing on the part of oil companies. Three companies, BP Amoco, ChevronTexaco and Royal Dutch Petroleum Co., control more than half the market.

None is aggressively seeking to increase market share, the only circumstance that would lead to more intense price competition, Lockyer said, noting, “They don’t have to conspire to make a lot of money in this business.”

This year’s spring pricing trend represents a change from 2003, when retail prices spiked to a then-record $2.17 per gallon in March, only to drop below $2 per gallon around Memorial Day.

While the high prices have motorists fuming, the additional expenses have not been enough to dissuade people from planning their summer vacations.

A survey being conducted by the Automobile Club shows that at least 3 million Southern Californians are expected to take a Memorial Day weekend vacation of at least 50 miles from their home, same as last year. Of those, 80 percent will drive to their destination.

The Auto Club is trying to determine whether high prices will entice people to reduce their travel time.

“Based on what we’ve seen so far, people are planning their trips,” Spring said. “It tells us they still want to get away. We just need to know how far they are driving and for how long.”

Besides consumers, stations are also bearing the brunt of the price hikes, as profit margins get squeezed when customers switch to a lower grade of fuel.

“The retail gets most of the blame because they are on the customer service end,” Woods said. “But they would rather have gasoline at $1 a gallon than $2 a gallon. The customers are happier and in a free enterprise market, that’s a big goal.”

Bloomberg News contributed to this story.

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