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FUEL

Falling gas price eludes the state

Costs inch higher as supplies in California drop to a 15-year low.

December 30, 2008|Ronald D. White

The U.S. average retail gasoline price fell for the 25th straight week to a level not seen since early 2004, the Energy Department said Monday.

But California's gasoline prices inched higher by nearly half a penny over the week as supplies lagged behind even the weakened demand for fuel.

Crude oil for February delivery traded as low as $37.53 in light action before rising $2.31, or 6%, to end at $40.02 a barrel on the New York Mercantile Exchange as traders worried about continuing Israeli military strikes into the Gaza Strip.

"Six months ago there would have been a lot of concern in the oil markets over what the Israeli strikes might mean for oil production in the region, but unless this conflict spreads to other countries I think this is going to be a small, short-term bounce for oil," said Phil Flynn, vice president and senior market analyst for Alaron Trading Corp. in Chicago.

Oil's plunge from the peak above $147 a barrel last summer is continuing to pay off for consumers at the pump.

The U.S. average price of a gallon of self-serve regular gasoline fell 4 cents to $1.613, according to the Energy Department's weekly survey of filling stations. That was the lowest average since $1.595 gasoline was recorded Jan. 19, 2004. A year earlier, the national average was $3.503 a gallon.

California's gasoline prices rose 0.4 of a cent over the week to an average of $1.810 a gallon, adding to the previous week's increase of nearly 7 cents a gallon, but the state's latest average was still $1.488 lower than the year-earlier price.

The increase has caused concern among groups such as Consumer Watchdog, which blamed California refiners for a sharp drop in stockpiles of the higher grade gasoline required to meet the state's air pollution thresholds. The Santa Monica advocacy group said the refiners were seeking increased profits by sending more of their output to other states.

Judy Dugan, research director of Consumer Watchdog, said California grade gasoline stocks "are way down. California refiners are offering a gift of lower prices to neighboring -- and smaller -- states, in order to keep prices up in their bigger market, California."

Joe Sparano, president of the Western States Petroleum Assn., said refiners were merely responding to the severe recession and the precipitous decline in gasoline demand among the state's motorists.

"This economic slowdown has been a cause for the drop in demand, and the state's supplies of gasoline match up with that demand," Sparano said.

Also, some California refineries have reported supply-squeezing equipment malfunctions. Few refineries outside California make its blend of clean-burning gasoline.

Energy Department figures released Monday showed California gasoline supplies at a 15-year low as of October, the most recent month for which statistics were available. However, California Energy Commission spokesman Bob Aldridge said Monday that the agency didn't regard the recent drop in refinery production as significant because weekly fluctuations were common.

Also influencing fuel prices, according to analysts, were worries over the recent Chapter 11 bankruptcy filing of Flying J Inc. and its Big West Oil refining and Longhorn Pipeline subsidiaries.

Flying J's holdings include a 70,000-barrel-a-day refinery in Bakersfield, which supplies 6% of the state's diesel and 2% of its gasoline.

The company sought to assure customers that normal operations would continue, saying in a statement last week that "all of Flying J's operations, including approximately 250 travel plazas and fuel stops, are open and serving customers in the normal course."

But some analysts said there might have been a boost in prices because of fear that production might be lost at least temporarily.

Still, Tom Kloza, chief oil analyst for Oil Price Information Service in New Jersey, said California and the rest of the country could probably count on higher gasoline prices early next year as refiners switch to the more expensive blends used during warmer months.

"There will be a strong rally in West Coast prices, but probably not until February," Kloza said.

--

ron.white@latimes.com

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