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Q&A: Why gasoline prices are so high

Retail gasoline prices have jumped so quickly that some experts are rethinking their predictions on how high fuel prices could go this year.

March 05, 2012|By Ronald D. White, Los Angeles Times

At the moment, many refineries are producing less gasoline because of routine yearly maintenance. On top of that, refineries in regions with pollution problems are undergoing their annual switch to summer gasoline from winter gasoline, mandated by air quality regulations. The annual transition is usually good for a price bump because the summer formula, designed to reduce evaporation of pollutants during warm weather, is more difficult and more expensive to produce than the winter formula.

Then there's the matter of what type of oil the regional refineries are using. In recent months, West Texas Intermediate oil has been significantly cheaper than Brent crude. But because of pipeline transportation bottlenecks, little of that cheaper oil travels to the West Coast and East Coast. Refineries there are more likely to use imported oil. "If you live on either the East or West coasts, the oil used to refine your gasoline costs $120 a barrel or more," said Phil Weiss, senior energy analyst for Argus Research.

So there still should be excess supply in the U.S. to drive down gasoline prices, right?

Wrong. U.S. refiners have be closing refineries in response to declining demand. In addition, refineries have been shipping record amounts of refined fuels overseas, where demand is higher. That has helped keep supplies in the U.S. relatively tight.

Why are gasoline prices in California so much higher than those in most in other states?

California's special type of gasoline is the least polluting in the nation but is also more expensive to produce than other gasolines. California also has a limited number of refineries, leaving it subject to price surges when problems arise. Few refineries outside the state are capable of making gasoline to California's clean-air specifications, and those that can make the gas aren't connected by pipeline, so the fuel must make a slow and expensive journey by ship or truck.

California oil production, which peaked at 424 million barrels a year in 1985, has dropped to about 225 million barrels and is "expected to continue to decline," according to the California Energy Commission. Production is also declining in California's other source of U.S. crude: Alaska. To compensate, there has been a 71% increase in California's imports of foreign oil, a trend that almost certainly will continue. The cost of that foreign oil is based on the Brent price, which now is very expensive.

Also, taxes levied on gasoline in California are on the high side.

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