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Don't Expect Gasoline Prices to Return to Friendlier Levels

Per-gallon costs may dip a little, but a constant strain on supply ensures a rough road ahead.

March 01, 2004|Elizabeth Douglass, Lisa Girion and John O'Dell | Times Staff Writers

Toy company executive Carson Lev sells tiny cars for a living. But it's his gas-slurping 1995 Chevrolet Impala SS that's driving him to distraction.

Because of rising gasoline prices, Lev's 136-mile round-trip commute from his home in Laguna Niguel to his office at Mattel Inc. in El Segundo is costing him $103 a week, up from $85 a few months ago.

"It's taking a lot of money out of my pocket," said Lev, a Hot Wheels marketing manager. "I make a nice living, but for most working people this is a real hit."

In recent days, Lev and other Californians have been paying close to last year's peak, when per-gallon pump prices stayed above $2 for 13 weeks. The advice from market watchers: Get used to it.

For The Record
Los Angeles Times Tuesday March 02, 2004 Home Edition Main News Part A Page 2 National Desk 1 inches; 42 words Type of Material: Correction
Gasoline prices -- An article in Monday's Section A incorrectly said retail gasoline prices might ease soon because of declining crude oil prices. It is the price of wholesale gasoline that has declined in recent days, not the price of crude oil.

"You're in a permanent trend toward higher and higher highs -- and higher lows," said Tom Kloza, an analyst with the Oil Price Information Service, which tracks oil and gas prices. "At some point, you can't call it a spike."

In the last week, the price of self-serve regular jumped more than 20 cents to an average of $2.152 per gallon in Los Angeles County, according to the Automobile Club of Southern California. That's not the record; according to Auto Club statistics, that was $2.18 a gallon, set in March 2003.

This year's increase -- 51 cents per gallon so far -- is being blamed on a spate of malfunctions that reduced gasoline output at several of the state's refineries. That gave a swift kick to prices that were already riding higher because of the escalating cost of crude oil, the base ingredient in gasoline.

Today's gasoline supply troubles have spread to diesel and jet fuel because both are produced for California by 13 overextended refineries. Jet fuel price hikes are being passed on in the form of costlier airline tickets and higher air freight fees, while the rising cost of diesel affects farmers and companies whose products are hauled in semitrailers and trains.

"Transportation is such a fundamental thing, it can cut into lots of activities," said Joe Hurd, senior economist at the UCLA Anderson Forecast.

At Downey Plumbing, Heating & Air Conditioning, which had been spending about $3,000 a month on gas for a fleet of two trucks and eight vans, General manager Joe Keays figures the bill could increase by 20%, or $600.

In a highly competitive market, Keays said, raising his prices wasn't an option. "How do we offset that? We just have to batten down the hatches and find other ways to cover those costs."

If steep fuel prices linger, they could dampen the tourism boom expected to accompany this summer's debut of a bevy of new attractions at Southern California theme parks, said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp.

"If gas prices are high, people might say, 'Do we really want to go there?' " Kyser said.

Although the latest gasoline price run-up may begin to ease soon thanks to a recent decline in crude oil prices, experts don't see anything on the horizon to improve the precarious balance in California between supply and demand.

The crux of the problem is that there are just 13 refineries straining to feed a state with the world's most voracious appetite for petroleum products.

Even operating at near-peak capacity, the refineries can't make enough to supply the nearly 42 million gallons consumed each day in California plus 5.3 million gallons the refineries send daily to Nevada and Arizona.

The shortfall is filled with imported gasoline from the handful of refineries around the country that can follow California's exacting cleaner-burning fuel recipe.

"When everything's running right and the demand isn't too high, we have enough capacity, but that doesn't happen very often," said Severin Borenstein, director of the University of California Energy Institute. "Usually something goes wrong."

Population growth and consumers' penchant for big cars worsen the problem.

There are no plans for new refineries or major expansions. In fact, this fall, Royal Dutch/Shell Group will close its Bakersfield plant.

Other factors setting the stage for chronic bouts of gas-price hikes include new competition for imports of specialty gasoline blends and the fact that refiner profits rise when gasoline is in short supply, giving them a powerful disincentive for keeping the market flush with fuel.

"This situation, without a change, is not going to get better soon," said Joe Sparano, president of Western States Petroleum Assn. The market is not being manipulated by oil companies, he added, saying the problem is that "demand is outstripping supply."

Others aren't so sure. Sen. Barbara Boxer (D-Calif.) has asked the Federal Trade Commission to investigate whether oil companies are somehow stage-managing the state's gasoline market.

Rep. Doug Ose (R-Sacramento) plans a hearing this spring into the gas supply problems and has asked the Energy Department to conduct a study of the price spikes in 2003.

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