Gas Lines Possible This Summer in CA

STATE -- Gasoline prices set an all-time record in California yesterday and could top $2 a gallon by the end of May, according to the latest industry forecasts.

The U.S. Energy Department predicted yesterday that even if OPEC agrees to increase production later this month, ``retail gasoline prices are poised to surge to unprecedented levels before the spring is out.'' The Energy Department warned that domestic stocks ``remain alarmingly low'' and the market ``is moving into uncharted territory.''

The average price of a gallon of regular, unleaded gas at self-service pumps throughout California hit $1.633 cents yesterday, according to the California State Automobile Association. That was up a stunning 11.5 cents a gallon over the average price of $1.518 per gallon charged at 80 service stations surveyed by the auto association a week before.

The causes are well known to California motorists: expensive environmental requirements, higher state sales tax and little competition. The current price is about a penny more than the highest previous average price set April 12, 1999.

Adjusted for inflation, the highest price in California was actually $2.31 per gallon set in 1981 during a severe price squeeze by the Organization of Petroleum Exporting Countries. But that is little solace to drivers.

The Energy Department's statistical agency said average nationwide prices are approaching $1.50 a gallon for 87-octane gasoline and could easily reach $1.80 a gallon during peak summer driving months.

In California, especially the Bay Area, such prices already abound. At Dennis DeCota's two Unocal 76 stations in Millbrae and San Anselmo, the price is $1.839 per gallon, up 19 cents in just the past 20 days.

``Customers are telling me they're angry at what amounts to a penny-a-day increase in prices, but I am, too,'' said DeCota, who also is executive director of the California Service Station and Automotive Repair Association.

SUPPLIER BOOSTS COSTS

DeCota said his supplier, Tosco, is charging him 20 cents more per gallon than 20 days ago. After paying 7.25 percent in local sales taxes and state and federal taxes and fees of 34.8 cents a gallon, DeCota declared, ``I'm making less than three weeks ago,'' not much more than a dime a gallon.

He blames the major oil companies as much as OPEC, especially because about 90 percent of all oil consumed in California is of domestic origin. California consumes more oil than any other state -- about 14.3 billion gallons a year, and each penny increase in oil prices generates about $140 million in extra revenue for the companies.

``By summer, you'll see $2 (per gallon) gas on average and possibly some gas lines,'' DeCota predicted.

STATE IS AN ISLAND

California auto association spokesman Paul Moreno said there already are cities and neighborhoods where gasoline is approaching $2 a gallon. ``West Coast prices go up farther faster due to several factors including our requirements for specially formulated, cleaner- burning fuel,'' he said. ``That makes us an island unable to draw on refiners in neighboring states.''

California also has less oil company competition -- six companies control 92 percent of production -- and higher sales taxes than other states.

Compounding the problem is that California refiners have smaller reserves than normal. The American Petroleum Institute recently reported that Western states had 26.6 million barrels in inventory. That compares with what is considered a ``healthy'' level of 27.5 million to 28 million barrels.

The low reserves are a result, in part, of planned winter shutdowns of facilities for routine maintenance. But some companies reportedly also have been reluctant to produce gasoline because of rising crude oil prices.

``Holding inventories is costly and as oil gets more expensive, refiners have decided to keep lower supplies to lower their costs,'' said Severin Borenstein, director of the University of California Energy Institute in Berkeley. ``This can lead to shortages and even higher prices.''

The California Energy Commission reports in its most recent survey for the week ended February 25 that California refiners produced 6 million barrels of reformulated gasoline. That was almost identical to the number produced during the same period last year after refinery fires and extended maintenance shutdowns crimped gasoline production in California.

The good news is that oil exporting countries may boost production soon to ease the shortage that has pushed crude prices to more than $32 a barrel from $11 a barrel at the end of 1998.

However, the Energy Department report suggested that because of low inventories, it ``would undoubtedly be too late'' to keep retail gasoline prices from rising even if the additional oil is pumped immediately. OPEC members will meet March 27 to decide whether to pump more oil. They cut production by 4.3 million barrels a day early last year in response to a world oil glut that saw prices drop to below $11 a barrel. A barrel is 42 gallons.

Saudi Arabia, Venezuela and Mexico have already said they will recommend some production increases, and another major producer, Kuwait, has signaled a willingness to go along. But the producers have given no indication of the size of an increase.

PRICES COULD COME DOWN

The Energy Department analysis figures that a 1.7 million-barrel-a- day increase in production, if put into place immediately, could drive down prices from $32 a barrel to $25.50 a barrel by August and down to $23 by the end of the year.

West Texas Intermediate crude for April delivery rose to as much as $32.20 a barrel on the New York Mercantile Exchange yesterday before settling up 67 cents at $32.18 -- the highest closing price since Nov. 29, 1990.

If production is increased by 2.5 million barrels a day, prices could dip to $23 a barrel by July and to $17 a barrel by year's end. But if production increases were delayed until fall, the analysis predicts crude prices would increase to $35 a barrel by summer.

There is no certainty that all the countries will even agree to boost production. Iran and Iraq, which together account for 8 percent of the world's oil production, have argued against increases.

So far, few consumers have balked at paying the increased gas prices and hardly anyone is predicting that

Americans will change their driving habits or cancel their vacation plans. But that could change once prices pass the $2 per gallon barrier -- or if supplies become tight and lines form at the gas pump.

http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2000/03/07/MN82469.DTL

-- Carl Jenkins (Somewherepress@aol.com), March 07, 2000