Few refineries outside California make the state’s clean-burning… (Alex Brandon / Associated…)
California drivers will pay record gasoline prices over the Memorial Day weekend but could get relief in the weeks ahead — unless more unplanned refinery outages occur. Then all bets are off, analysts say.
The average price of a gallon of regular gasoline in California was $4.311 on Thursday, down 5.5 cents from a week earlier, according to the AAA Fuel Gauge Report. That beats the previous state record for the traditional start of the summer driving season: During the Memorial Day weekend of 2008, average high prices ranged from $4.168 to $4.228.
Prices are moderating on the West Coast partly out of the wholesale market's anticipation that several hobbled refineries will return to operation, the Energy Department said. "This means if the wholesale market … is not subject to new disruptions, retail prices should see continuing downward movement in the coming weeks," the agency said in its weekly petroleum report.
Most of the rest of the nation can expect summer gasoline prices to ease, analysts said, because oil prices have been slipping lately. The U.S. benchmark West Texas intermediate crude rose 76 cents to $90.66 a barrel Thursday, and the European benchmark Brent crude, which determines the price of much of the U.S.' imported oil, increased 99 cents to $106.55.
The U.S. average gasoline price Thursday was $3.676 a gallon, down 4.6 cents from a week earlier, according to AAA. The AAA Fuel Gauge Report uses averages from daily receipts from more than 100,000 U.S. retail outlets, collected by the Oil Price Information Service and Wright Express.
The key difference between California and other states is supply. Few refineries outside California make the state's clean-burning gasoline, so any problems squeeze fuel supplies and cause prices to rise.
Fuel price specialist Bob van der Valk described the situation faced by California heading into the summer as "bad news on top of bad news," saying that some gasoline storage terminals in Imperial, Barstow and San Diego were in jeopardy of running out of gas "if one more refinery has an unplanned maintenance problem." Four of the state's 12 gasoline refineries have been at least partially shut down this spring.
Another reason for the difference is location of oil supplies, the Energy Department said. U.S. oil supplies are running 11.6 million barrels ahead of last year, at 382.5 million barrels, which is also well ahead of the nation's five-year average. That's because of increased oil imports from Canada and domestic production booms in places such as North Dakota. But those supplies don't really help California.
"The West Coast market is relatively isolated," the Energy Department's petroleum report said, adding that the region's lack of oil pipeline connections to the rest of the U.S. means that refinery outages and supply problems "tend to cause more severe market dislocations as the logistics involved in back filling supplies can be difficult."
"Lose another refinery out there in California this summer and you could shoot to $4.80 a gallon," said Phil Flynn, an energy analyst with PFGBest Research, who cast himself at the high end of the predictions among a sampling of fuel price experts. That would top the state's record $4.588 a gallon set in the summer of 2008, according to Energy Department records.
Refinery problems in California and the West made it "the cursed region" in terms of gasoline supplies and prices, said Tom Kloza, chief oil analyst for the Oil Price Information Service. But Kloza was predicting that California prices would moderate over the summer, remaining above $4 on average but with some stations selling gasoline for less than $4 a gallon.
"Between Memorial Day and July 4th, one thing that tends to happen is that the refineries get their acts together and start increasing production," Kloza said, "and that starts to result in more comfortable supply numbers and lower prices."
Several other factors could influence summer gasoline prices, including the large amount of refined products exported overseas by refineries, analysts said.
Wally Tyner, an agricultural and energy economist at Purdue University, does a yearly summer fuel prices forecast and says that this year has been the most difficult ever to predict. Tyner is forecasting prices above $4 in California and a U.S. average of $3.50 to $3.65.
"It's harder this year because so many of the factors are political," Tyner said. "Problem in the Middle East could send oil up quickly, with gas prices following. But if debt contagion spreads in Europe, demand could fall and help drive prices lower."