Gas Prices Skyrocket In California

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This week's abrupt spike in California gasoline prices could peak within days, analysts said Friday. But before it does, price records could be broken throughout the state.

California's average for a gallon of regular jumped 17 cents overnight to hit $4.49 Friday morning, according to the AAA auto club's daily price survey. That's 12 cents shy of the state's all-time record, set in June 2008, right before the financial crisis sent oil and gas prices plunging. A week ago, the state average stood at $4.13.

San Francisco's average soared 36 cents this week, reaching $4.60 on Friday. The city's record average price? $4.62, also set in June 2008.

The run-up at the pump started Monday, after a power failure struck an Exxon Mobil refinery in Los Angeles County. That refinery, in Torrance, resumed full production Friday, leading analysts to predict that the price rise would soon run its course.

"It'll take a few days, but seven days from now we should be seeing some nice declines," said Patrick DeHaan, senior petroleum analyst for

First, however, drivers can expect a little more pain.

Tiffany Cabrales spent $76 Friday filling up her Acura Integra at a San Francisco station charging $4.76 for regular.

"I almost had a heart attack," she said, pointing at the pump. "For $10 you barely get 2 gallons now. It's crazy."

But Cabrales, 29, has to drive for work. A freelance cosmetologist, she serves clients scattered throughout the Bay Area. She fills up at least three times a week.

"It is what it is," Cabrales shrugged. "I have to pay it."

Calendar's off

The price increase struck at a time of year drivers usually find themselves paying less for fuel, not more. Gas prices typically peak in the summer and drop after Labor Day, as vacation season draws to a close. That's happening in many states right now.

But in California, gasoline supplies have been unusually tight in recent months. On Aug. 6, a fire swept through Chevron's Richmond refinery, seriously damaging the plant's main unit for processing crude oil.

Monday's power outage at the Torrance refinery shut down some of the plant's units and slowed others. At the same time, two other California refineries were cutting production for planned maintenance.

And all the state's refineries were preparing to switch the type of fuel they make. California requires refineries to sell a special pollution-fighting gasoline blend during summer months. They switch to the winter blend at the start of November.

Exxon's Torrance refinery makes about 10 percent of the state's gasoline. So when the power outage struck, traders in the wholesale gasoline market started bidding up prices. In the Bay Area, prices on the wholesale spot market rose from $3.64 per gallon Monday to $4.34 Thursday. With the refinery's return on Friday, the spot price for gas fell back to $3.68.

Sudden changes in the spot market, where people buy large amounts of gas for immediate delivery, usually take several days to filter through to the retail level. So drivers can probably expect a few more days of increases.

"It's not instantaneous," said Gordon Schremp, senior analyst with the California Energy Commission. "Consumers shouldn't expect to see prices fall overnight."

Supply contracts

The price spike hit Southern California hardest. Exxon jumped into the spot market this week to buy up enough fuel to fulfill all of its supply contracts. Valero stopped selling to independent stations that didn't already have supply contracts with the company. Gasoline distributors and independent stations that rely heavily on the spot market had a hard time buying gas at a price they and their customers could afford.

Some stations shut down, choosing to wait out the spike rather than sell gasoline at a loss. Other stations in the Los Angeles area were charging more than $5 Friday.

Costco stores in Southern California had trouble simply finding enough fuel, said Richard Galanti, the company's chief financial officer.

"We couldn't get supply, and the prices went all crazy too," he said. By mid-week , 15 of the discount retailer's Los Angeles area stores stopped selling gasoline But six of those started selling again on Friday, with the rest expected to follow on Saturday, Galanti said.

None of Costco's Northern California stores stopped selling gas.

Mark Mitchell, co-owner of the Coast Oil fuel distributorship in San Jose, said that none of the gas stations he serves had shut down, although some station owners had discussed it. When spot prices hit their peak on Thursday, the stations would have needed to charge about $4.89 to break even, he said.

"We get the gas – it's just at what price?" Mitchell said. "You're not going to sell much when it goes up 40 cents in a day."

Isolated market

The sudden jump in prices served as yet another reminder of the strange, isolated nature of California's gasoline market. Although many states use special fuel blends to fight air pollution, none uses the exact same blends as California. As a result, California relies on a small number of refineries – most of them located within the state – to make its fuel. If problems hobble several of those refineries at once, the state can't easily import gasoline from elsewhere.

California refineries try to maintain a close balance between supply and demand. Their profit margins have suffered in recent years because Californians have been buying less gasoline, with sales peaking in 2005. Many refineries export gasoline to other countries rather than let supplies build up here.

In July, the most recent month for which figures are available, West Coast refineries exported 1.4 million barrels of finished gasoline, according to the U.S. Energy Information Administration. That infuriates consumer advocates, who consider price spikes the inevitable result.

"No one is telling the refineries to keep enough supply on hand," said Liza Tucker, with the nonprofit group Consumer Watchdog.

David R. Baker is a San Francisco Chronicle staff writer. E-mail: [email protected]


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