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Wholesale Gas Prices Rise Again on Refinery Glitch

Energy: Signs of the latest increase may not show up at service stations until after the holiday weekend. By JAMES F. PELTZ TIMES STAFF WRITER

September 1 2001

Wholesale gasoline prices in California rose again Friday on reports of another refinery problem in the state, keeping upward pressure on pump prices as the busy Labor Day driving weekend gets underway.

A disruption at a Chevron Corp. refinery in Richmond--one of the state's largest, with a capacity to handle 225,000 barrels of oil a day--sparked the latest jump in fuel prices, analysts and industry executives said.

The wholesale price of regular self-serve gasoline in the Los Angeles area reached as high as $1.28 a gallon Friday, up from $1.18 only four days earlier. And the price has soared 82% since just six weeks ago, when it was 70 cents a gallon. "Everything is firming up" in terms of gasoline, diesel and jet fuel prices, said Bob van der Valk, fuel supply manager at Cosby Oil Co., an independent distributor in Santa Fe Springs.

Glitches at several California refineries, together with continued strong demand for gasoline, have unsettled the state's fuel trading market in the last two weeks and sent prices surging at both the wholesale and retail levels. The wholesale price is basically what the dealer pays for fuel not covered under a set contract price, before adding taxes and profit margin to establish the pump price.

Gasoline supplies are tight in California generally, because the state requires a special, cleaner-burning blend of gasoline that is mostly produced by refiners located in the state. For that reason, it is difficult to make up for a hobbled refinery's lost production by importing fuel.

"It has a psychological impact on the market whenever a refinery goes down or has unplanned downtime," said Mary Melge, senior editor at Oil Price Information Service, a Lakewood, N.J., firm that tracks the gasoline market.

"That's because it creates a sense that the problems are going to cause a shortage of supplies," she said. "Sometimes it's just psychological and sometimes it's a real concern, but the impact on prices is usually an immediate gain."

Mike Noble, who owns a Texaco station in Anaheim Hills, said the wholesale price he pays for gasoline has soared 13 cents a gallon in the last nine days, forcing him to raise his pump price for self-serve regular gasoline to $1.67 a gallon from $1.53 a week ago.

"Usually they [wholesale prices] don't go up anywhere near that fast," he said.

Noble said that he is bracing for the latest rise in wholesale prices, but that it is unclear how soon that increase will be evident at the pump.

Despite the refinery woes, "supplies are still pretty healthy on the West Coast" and are adequate to meet demand this holiday weekend, Welge said. That should mitigate how high service station dealers raise consumer prices, she said.

Indeed, pump prices haven't climbed nearly as much as wholesale market prices, in part because most retailers face stiff competition across the street. If a dealer raises pump prices in lock-step with the rise in wholesale prices but the competition balks, that dealer could lose sales.

Even under normal circumstances, analysts said, refiners and dealers typically try to raise prices during the Labor Day weekend to take advantage of the heavy demand for gasoline. Then, as driving tapers off after the holiday, gasoline prices follow suit and drift lower.

But the full effect of Friday's jump in wholesale prices probably won't reach the retail market until after the holiday weekend is over. So that could save a few pennies per gallon for the estimated 2.3 million Californians taking trips in the next three days, but it also might keep pump prices relatively high for all drivers well into September, analysts said.

"I see it lasting for at least two more weeks until we get these refinery problems fixed," Noble said.

The problem at the Chevron refinery in Richmond involved a failed compressor in one section of the refinery, said company spokeswoman Marielle Boortz. She said Chevron does not comment on how such problems affect its daily gasoline production rates.

Nevertheless, she said, "we don't feel it adversely affects our ability to supply products to our customers."

The Oil Price Information Service, in a bulletin to its clients, said that the Richmond facility will be operating "at reduced rates until Tuesday at the earliest," and that traders "see only those desperately needing refined products willing to pay the present lofty prices" for fuel. Boortz also declined to comment on the report.

-- Martin Thompson (, September 01, 2001

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