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Friday, Feb 3, 2023

West Coast Drivers Catch a Break, but Only Compared to Other Areas

For once, buying gas in California might be a relative bargain.

As pump prices suddenly skyrocketed by $1 a gallon or more in many portions of the South, Midwest and East late last week, California prices appeared to be rising at a slower rate, leading analysts to conclude that the gasoline crunch could be localized, at least for now.

This conclusion was based on the growing belief that the crisis is largely the result of shuttered refinery operations along the Gulf Coast, rather than serious shortages in the overall oil supply. Many of these refineries remained inoperable through the week, either because of damage from the storm or the lack of power. Given that California gets none of its gasoline from this region, supply lines here are expected to remain largely intact.

“Prices in California now are actually going to look like a bargain compared to the eastern third of the country,” said Denton Cinquegrana, West Coast markets editor at OPIS, the Oil Price Information Service in Wall, N.J.

This was borne out by a spot check of prices late last week that showed limited increases in and around the Los Angeles area. A gallon of regular sold for an average of $2.855 on Thursday, a 3 cent increase from the day before, according to the Automobile Club of Southern California.

Meanwhile, prices have soared in other parts of the country, according to various reports: $1.05 a gallon in Maryland, 88 cents in Washington D.C., 50 cents in Ohio and 40 cents in Georgia. Price-gouging and panicky motorists are believed to be at the center of some of these increases.

A survey taken Sept. 1 by the American Automobile Association showed Hawaii led the nation with the highest average prices, at $2.93 a gallon, followed by California ($2.88) Michigan ($2.82), and Illinois ($2.78). Typically, California is well ahead of any other state in the Continental U.S.

The vulnerability for California is centered more on oil prices, which as of last Thursday had stabilized to slightly under $70 a barrel. Should supplies not be impacted by the Gulf disaster, those prices are not expected to spike. That would minimize the likelihood of a major hike in gasoline prices or shortages.

Exposed economy?

Still, the situation is precarious. Attention continues to be focused on the soaring spot market, which is influential in setting overall price. Gasoline futures equivalent to wholesale prices before taxes, distribution and marketing continued their relentless rise last week and unless refinery production is restored quickly, some analysts were expecting $4 a gallon in some parts of the country, including California, within a few weeks.

And the longer those high pump prices linger, the more vulnerable the overall economy might be, though analysts generally doubt that a recession is in the offing.

“It’s like a person pushed to the edge, and then one more thing happens,” said Dave Hackett, principal at energy consulting firm Stillwater Associates in Irvine. “They do goofy things, they get irrational. It’s the same with no spare capacity. It drives prices up.”

Ron Appel, president of Gardena-based United Oil, which operates 120 independent gas stations, said he may have to shut some of his operations in Southern California because prices on the spot market are so high in some cases 20 cents higher than branded gasoline.

“This really shouldn’t be affecting California at all, so this is gouging,” he said. “We have no competition in this market. All the majors can point to the high prices on the spot market and say that’s the reason for it.”

An early reading on the public’s mood showed growing impatience with the higher prices, which have plagued the state for most of the year. A Field Poll found that 58 percent of Californians surveyed blame U.S. oil companies for the high prices, while 47 percent blame the Bush administration and 41 percent blame the foreign countries that produce oil.

“We probably will be tight for quite some time and the events in the Gulf are putting pressure all over the U.S., not just in California.” said Susanne Garfield, a spokeswoman for the California Energy Commission.

As prices rise, so are calls for re-regulation and price caps.

State Sen. Joe Dunn, D-Garden Grove, who has long criticized the oil industry, introduced a constitutional amendment last week to have the California Public Utilities Commission regulate oil and gas companies. The amendment is modeled on legislation in Hawaii that allowed that state to recently enact price caps.

“Hurricane Katrina is the excuse being used for raising prices,” said Dunn. “The average person on the street knows they’re getting ripped off because this is not average market behavior. When you have a dysfunctional, non-competitive market hiding behind free-market theories it’s hypocrisy at its worst.”

‘California is an island’

The irony is that in the current crisis, California appears somewhat better off than other states. That’s because the state depends on its own refineries to supply 90 percent of the special reformulated gasoline required by environmental regulations. (It also supplies all the gasoline to Nevada and Arizona, and to parts of Oregon.)

This has not been an ideal situation because California has just 13 gasoline refineries, down from 31 a decade ago all old and subject to breakdown. When refineries are forced to shut down for repairs or fire, the only plants capable of producing the kind of gasoline that will meet California air standards are in Oregon and the Virgin Islands. That typically results in a price spike.

“California is an island, an isolated market with strict specifications for gasoline, so even small problems reverberate through the market,” said Joe Sparano, president of the Western States Petroleum Association.

But in this instance, the dependence on in-state refineries can be a plus because California doesn’t have to compete with parts of the country that rely on the Gulf states for their gasoline. “That’s the big challenge now for the Gulf Coast,” he said.

Last week, the Department of Energy waived federal environmental fuel standards to get much-needed supplies to the Southeast. California’s own clean-air regulations are much tighter than federal standards, so the waiver will have no effect at the pump.

“We are looking at the documents now and hope to act as soon as possible,” said Dimitri Stanich, a spokesman for the Air Resources Board.


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