Gas Price In State Start To Inch Down

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But big drops won't come until station owners sell out costly fuel

Gasoline prices across California finally started falling Wednesday after setting records for four straight days. But don't break out the bubbly just yet.

California's average price for a gallon of regular gas slid half a penny from Tuesday to Wednesday, edging just below $4.67, according to the AAA auto service. That's still 51 cents more than California drivers paid at the start of October, when the price spike began. And it's 86 cents more than they paid at this time last year.

Don't expect to see a sudden plunge this week, analysts warn.

Gas station owners are still stuck selling fuel that they bought days ago, when wholesale prices were near their peak. Even though wholesale gasoline prices in California have tanked since last week, tumbling 26 percent in the Bay Area, it will take time for retail prices to follow suit.

"It's the pass-through costs," said Brian Milne, refined fuels editor for the Telvent DTN business information service. "I think you still have a little more pain working through the system."

In addition, many gas station owners probably lost money during the sudden price increase, as hard as that may be for drivers to believe. When California's wholesale gasoline markets went haywire last week, many station owners couldn't raise their retail prices high enough, fast enough to keep pace – not without pushing away all their customers. Now they'll try to make up some of the cash they lost.

"You're going to hold that price up a little bit longer if you can," Milne said of the station owners. "You're going to try to recoup some of the margin loss."

Causes of increase

The price hike began Oct. 1, when an Exxon Mobil Corp. refinery in Torrance Los Angeles County was hit by a power outage. California's gasoline supplies had already been strained by the Aug. 6 fire at Chevron Corp.'s Richmond refinery, as well as the closure of a Chevron pipeline that carries crude oil from Kern County to the Bay Area.

The combination of problems led traders to bid up the price of gasoline sold on the state's wholesale "spot" markets, where companies buy large quantities of fuel for immediate delivery. The Bay Area's wholesale price for gas peaked at a record $4.34 per gallon on Oct. 4 and has fallen almost every day since.

California's gas supplies could remain tight for months. Chevron reported Tuesday that the Richmond refinery's crude-oil processing unit would remain closed through the end of the year. The refinery is still making gasoline, using blending components supplied by other facilities, but production has dropped roughly 38 percent.

The price spike's effects are already being felt in Sacramento and Washington.

California's Democratic Sens. Dianne Feinstein and Barbara Boxer have called for federal investigations, questioning whether the state's gasoline market has been manipulated. The chairman of the Federal Trade Commission, Jon Leibowitz, issued a statement Wednesday saying that his office would remain vigilant against manipulation. He did not, however, say whether the commission would open an investigation.

State Sen. Mark Leno, D-San Francisco, announced a legislative committee hearing that will delve into the causes of the price rise and discuss the safety of California's refineries. The hearing will be held in November.

"I am concerned that refineries have no incentive for keeping their operations safe and fully functional, because their profits increase greatly following any type of disruption, whether it is the consequence of a potentially deadly explosion or failed piping," Leno said, referring to the Richmond fire.

Shutdowns hurt

But Tupper Hull, a spokesman for the Western States Petroleum Association trade group, said refineries don't profit when they suddenly shut down. Instead, they have to buy fuel on the spot market to supply their customers. That happened with Exxon last week.

"If you're not making fuel, how do you benefit from that?" Hull said. "Refineries do not make money if they're not making gasoline."

Consumer advocates used the price spike to urge state officials to block the sale of a major California refinery. In August, Tesoro Corp. reached a deal to buy BP's refinery in Carson Los Angeles County as well as BP's Southern California marketing operations and the rights to the ARCO brand name. That would give Tesoro, based in San Antonio, Texas, and Chevron, based in San Ramon, control of almost 50 percent of California's refining capacity, according to the nonprofit group Consumer Watchdog.

"A California refining market that is already concentrated and uncompetitive will become a duopoly, with even higher retail gasoline prices and greater market control by the industry," the group argued in a letter sent Wednesday to California Attorney General Kamala Harris.

Tesoro spokeswoman Tina Barbee said the company was committed to keeping its retail prices low if the deal goes through.

"We understand that a big part of why customers keep coming back to ARCO is low cost," she said. "That's why we're determined to maintain the model."

Consumer Watchdog
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