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Refinery work boosts gasoline prices in California

Lower output at two sites leads regular gas to rise an average of 6.2 cents a gallon to $3.099 in the last week. The U.S. average fell 2.5 cents. Analysts expect costs at the pump to climb further.

September 09, 2009|Ronald D. White

While much of the rest of the nation gets a break on gasoline costs, California motorists are seeing pump prices rise to new highs for the year because of reduced fuel production by the state's refineries.

And there's more to come, analysts predicted, with one estimating an additional 20 cents a gallon of running room before prices peak.

California's average price for a gallon of regular gasoline rose 6.2 cents to $3.099 as of Monday, the Energy Department said Tuesday, a day late because of the Labor Day holiday. The latest price topped the earlier high for the year of $3.047 on Aug. 17.

Nationally, the average hit $2.588, down 2.5 cents, the Energy Department said in its weekly survey of U.S. filling stations. The cheapest state in the survey was Texas, where gasoline sold for an average $2.404 a gallon.

California frequently has the most expensive gasoline in the 48 contiguous states. Strict environmental standards have resulted in the nation's cleanest blend that few refineries outside the state produce. That isolates California from the rest of the nation's supply network and leaves it vulnerable to price spikes.

In New York futures trading Tuesday, crude for October delivery climbed $3.08 to $71.10 a barrel as the dollar slumped. That made oil, which is priced in dollars, cheaper for foreign buyers and drove investors to purchase oil futures and other commodities.

For the last few weeks, as the summer driving season drew to a close, gasoline prices had been slipping lower in most of the U.S. and holding steady in California; during the same period, oil gyrated between $67 and nearly $75 a barrel.

Having just filled up his aqua-colored 2001 Toyota Prius on $3.29-a-gallon gasoline at the Shell station on Olympic Boulevard at Grand Avenue, seafood salesman and downtown Los Angeles resident Saeed Masjedi just shook his head in disgust.

The oil industry "is stealing billions of dollars from us. They should be investigated. They should be prosecuted," Masjedi said.

The oil industry consistently maintains that gasoline prices are determined by supply, demand, competition and other factors.

"While it is accurate that California gasoline is on average higher than the U.S. average, we continue to have the highest fuel taxes in the nation," said Joe Sparano, president of the Western States Petroleum Assn. "Our regulatory agencies have told us it costs 5 to 15 cents a gallon more to make California's cleaner burning gasoline."

The state has only 13 gasoline refineries, which can leave supply lagging behind demand, he said.

Analysts attributed California's price surge to a supply squeeze in the state. Production of reformulated California gasoline fell to 5.8 million barrels in the most recently reported week, which ended Aug. 28, about a million barrels below the rate for the same week last year, according to the California Energy Commission.

Some of the decline is because of the slow return from maintenance overhauls by two Northern California refineries, analysts said. Shell Oil Co. has been overhauling a unit at its 156,400-barrel-a-day refinery in Martinez since mid-July, and Tesoro Corp. on Tuesday completed maintenance on a coking unit at its 166,000-barrel-a-day refinery, also in Martinez.

In addition, refiners have been trimming output to boost profits, said Tom Kloza, chief oil analyst for the Oil Price Information Service in Wall, N.J., who predicted that California gasoline could climb as high as $3.25 a gallon on average.

"This is what happens when you have refiners who do not want a repeat of last year, when prices and their profits collapsed. They are very intent on not overproducing," Kloza said.

At an average of $2.866 a gallon, California also has the most expensive diesel fuel in the contiguous 48 states, a fact that was not lost on several Southern California trucking company executives who had gathered Tuesday for a preemptive strike against potential legislation that would sharply increase the state's excise tax on motor vehicle fuels.

A draft copy of the bill, which hasn't been introduced but is making the rounds in Sacramento, would double the state's per-gallon excise tax on gasoline and diesel to 36 cents from 18 cents. Each gallon also carries a federal excise tax of 18.4 cents as well as state and local sales taxes that average 8% statewide.

The executives described one of their most difficult years in recent memory, jarred by record high gasoline and diesel prices in the summer of 2008 and the steep recession-related drop in business.

"Businesses like ours cannot take another increase in costs in this down economy. I'm stunned at the thought of facing an increase in taxes," said Fred H. Johring, president of Golden State Logistics and Golden State Express, which have shaved their combined payrolls by 30% to 55 full-time and temporary workers.

Rick Lorenzen, chief executive of Price Transfer Inc., said his business was down 30% this year because of the recession.

"If we have to pass any more costs on to our customers," Lorenzen said, "our customers are not going to stick around."


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