Gas Prices Heading Back Up

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SAN FRANCISCO, CA — If the past 10 days are any indication, America could be in for another dizzying year at the gas pump.

Gasoline prices nationwide have jumped since the turn of the year, with the nationwide average rising 11 cents per gallon since Monday alone. The national average, tracked by the AAA auto club, hit $1.78 for a gallon of regular on Friday. California’s average reached $1.96 and may top $2 this weekend.

In part, it’s the result of a brief rally in the market for crude oil, gasoline’s main ingredient. At the same time, gas refineries have been cutting production in a bid to reduce supplies and shore up prices. And that infuriates some oil industry critics, who say the refiners are trying to squeeze the market.

"Look at the economy – nothing else is going up in price," said Judy Dugan, research director with the nonprofit Consumer Watchdog. "That’s not the case with fuel, and that’s because there are so few players – especially in California – controlling the production."

Oil industry representatives say that gas prices last year fell so far and so fast that many refineries actually lost money making fuel. Americans are buying less gasoline, and the refineries have to cut production in response, industry representatives say.

"With declining demand and poor (profit) margins, what are you going to do?" said John Felmy, chief economist for the American Petroleum Institute, the industry’s main lobbying group.

Even taking this month’s increase into account, gasoline prices are still nowhere near the heights they reached last year, when California’s average price set a record of $4.61 per gallon. Gas in the Golden State costs 41 percent less than it did a year ago.

The big drop in gas prices in the second half of 2008 followed a similarly steep drop in the oil market. But starting in late December, oil prices staged a two-week rally, rising from a low of $33.87 per barrel on Dec. 19 to $48.81 on Jan. 5. That rally has now worked its way into gasoline prices.

At the same time, some refineries are slashing the amount of fuel they produce.

Refining company Valero reported in December that it would cut gasoline production, and others appear to be following suit, particularly on the West Coast.

In addition, the owner of a Bakersfield refinery filed for bankruptcy protection late last month, and the plant has stopped production, at least temporarily.

Last week, California refineries produced 12 percent less gasoline than they did during the same week last year, according to the California Energy Commission.

E-mail David R. Baker at [email protected].

Consumer Watchdog
Consumer Watchdog
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