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California and the West

Gasoline Prices Ease Slightly

A survey finds a 4.4-cent drop in California's average. Industry fears over the season's first tropical storm abate.

June 13, 2006|Ronald D. White | Times Staff Writer

The summer fuel rollercoaster ride got going in earnest during the last week as California's average pump price dropped a few cents and the U.S. average rose more than a penny, the Energy Department said Monday.

Oil futures fell more than $1 a barrel Monday as the first storm of the Atlantic hurricane season headed away from the key Gulf Coast oil-producing region.

In California, the average cost of self-serve regular gasoline dropped 4.4 cents to $3.225 a gallon, about 89 cents above the year-ago level, according to the government's weekly survey of filling stations.

The U.S. average moved up 1.4 cents to $2.906 a gallon from the previous Monday. That was nearly 78 cents higher than a year earlier.

Gasoline prices were propelled higher in most of the country by strong demand and near-record crude oil prices.

California is experiencing a "slow drift to lower prices" that should continue at least through the end of the month, said Tom Kloza, chief oil analyst for Oil Price Information Service, a Wall, N.J., company that tracks fuel markets. But he warned that the nation remained susceptible to price increases because of refinery mishaps or weather disruptions.

"Prices should remain where they are and ease a little bit in the West," Kloza said. U.S. fuel stockpiles are thin, he said, leaving "not much of a margin for error."

Crude oil futures had a wild ride Monday as Tropical Storm Alberto gathered strength. But when it became apparent that Alberto was heading toward Florida and bypassing key Gulf Coast petroleum production and refining centers, crude oil for July delivery dropped $1.27 to $70.36 a barrel on the New York Mercantile Exchange.

"The market was getting blown up and down in the winds of Alberto earlier. Later in the day, it kind of faded as Alberto faded," said Phil Flynn, vice president and senior market analyst for Alaron Trading Corp. in Chicago.

Monday's trading brought the first glimpse of the tripwire mentality created by fears of a repeat of the damage caused by hurricanes Katrina and Rita last year.

"Anytime something goes into the Gulf of Mexico, you'd better batten down the hatches in the futures markets," Flynn said.

That's in spite of the fact that much has been done to mitigate the possibility of long-term damage from another severe storm. Since the devastating Katrina-Rita punch, which virtually shut down production for a time, the industry has stockpiled replacement parts and complied with new federal regulations requiring additional anchors for offshore petroleum platforms in the Gulf of Mexico.

A report issued last week by the Energy Information Administration predicted an 80% chance of "an above normal hurricane season in 2006," noting that gulf oil production is still 15% below pre-Katrina and Rita levels and natural gas production is still down by 11%.

There is more to oil's lofty price than weather worries, analysts said. International tensions are helping keep crude above $70 a barrel; the latest flare-up came from reports that North Korea was planning to test an intercontinental ballistic missile that could reach the United States and was threatening to retaliate for alleged U.S. spy plane flights.

"In the backdrop of a scary world, it's another reason not to be caught too short in the market," Flynn said.

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