Published Wednesday, March 15, 2000, in the San Jose Mercury News

Area gas prices hit 14-year high $1.85 a gallon: Filling up now costlier than during the gulf war. BY GARY RICHARDS Mercury News Staff Writer

Gas prices in Silicon Valley have soared 35 cents a gallon in the last month and 67 cents a gallon in the last year, hitting their highest level in 14 years, a survey reported Tuesday.

The average gallon of self-serve unleaded fuel has reached $1.85 in the South Bay, according to the California State Automobile Association. That is a dime more than the inflation-adjusted price motorists paid during the gulf war in 1991, when oil companies feared that pipelines from the Middle East might be shut down while bombs rained on Iraq.

The rapid rise has motorists stunned, and records falling:

Gasoline costs $2 a gallon in Eureka, most likely the highest average of any midsize city in the country, according to the auto club.

In San Francisco, gas is at $1.90 a gallon, the highest in any metropolitan American city.

Outside of a nearly 50-cent spike of monthly prices a year ago, the 35-cent monthly jump is the biggest since Jimmy Carter was president, when the Iranian-hostage crisis sent prices rising 34 cents from late 1979 to early 1980.

The state average of $1.74 a gallon is 20 cents higher than the national rate, while the Bay Area mark of $1.84 is 30 cents more expensive than what other Americans are paying.

Prices have increased nationally 57.3 cents since last March when the nationwide average was 97 cents per gallon -- the biggest swing since the American Automobile Association began tracking prices in the early 1970s. While the latest figures are a far cry from the all-time, inflation-adjusted high in 1981 -- $2.73 a gallon in the Bay Area and $2.56 nationally -- it has folks plenty worried. Nearly 65 percent of U.S. motorists say they would drive less if gas reaches $2 a gallon this summer, according to a USA Today-CNN-Gallup poll.

``You see this happening in the winter and that is what really gets scary because it always goes up 25 to 30 cents in the summer,'' said Tom Ramar of Los Gatos. ``This is pretty unreal.''

$2 a gallon predicted

Many experts predict the national price -- now at $1.54 -- will reach $1.80 by summer. For Northern California, where prices are usually 25 to 35 cents higher than the national figure, that could mean gas for $2 a gallon on average.

``It's a rough situation,'' said Jerry Cummings, president of Coast Oil, which owns Rotten Robbie stations. He gets his gas from major refiners like Shell, Chevron and Arco. ``And it's only going to get worse.''

The Organization of Petroleum Exporting Countries has cut production, some California refineries are having maintenance problems and others in the state have lowered inventories to get rid of winterized gasoline. Bottom line: There is not enough fuel to go around. Inventories in the United States are at their lowest levels in four years.

That's why discount stations are charging as much as stations like Shell, Chevron and Texaco. Those major companies sell their excess gas to the thrift stations, usually at cheaper prices. But with supplies low, discount stations are having to bid higher to get that gas.

And you're seeing it at the pump. Rotten Robbie and Beacon, for example, have hiked prices 6 to 8 cents a gallon since Friday.

Some refineries operating at full capacity are coming out winners. Refinery margins on a gallon of gas have risen from 25 cents a year ago to as much as 66 cents now, according to the California Energy Commission. That figure includes both profits and cost of production. It's a sign that some major oil companies are raking in the cash.

``Some are getting pretty fat right now,'' Cummings said.

But local service station owners are not faring well. According to the California Energy Commission, dealers are selling for a loss of anywhere from 2 to 12 cents a gallon.

Some motorists with hefty gas bills are rethinking their budgets, like John and Jacque Gulan of San Jose. Before the sudden rise, they spent around $390 a month to keep her Suburban filled and his Chevy cargo van loaded with tools motoring to construction sites on the Peninsula.

They estimate their March gasoline bill will hit $580 -- a 49 percent increase.

``We're gritting our teeth and stealing from Peter to pay Paul,'' said Jacque Gulan, who is combining trips and trying to drive less. ``Truthfully, we live pretty frugally. There's not many places where we can cut corners.''

View from Washington

U.S. Energy Secretary Bill Richardson didn't offer much hope Tuesday. He said even if oil-producing countries decide to boost output when they meet March 27, it might not mean a sudden decline in prices.

``If OPEC increases production by a sizable margin and gets that oil out in a timely fashion, then you will start seeing gradual reductions,'' Richardson told Fox News in Washington. ``I am not promising that they're going to spike downward, but I think it will ease the problem.''

Crude oil that will be delivered to the United States next month fell as much as 82 cents to $31.20 a barrel Tuesday on the New York Mercantile Exchange. Before you cheer, remember those prices are more than three times higher than two years ago.

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-- Martin Thompson (mthom1927@aol.com), March 15, 2000