Low Supply Makes the West a “Compromised Market for the Rest of This Decade,” say OPIS Chief
Santa Monica, CA — A top oil industry analyst predicts today that even if gasoline supplies and prices ease off in the rest of the nation this summer, the West won’t be so lucky. Regular gasoline is at $3.285 a gallon according to AAA, less than 10 cents below last May’s all-time record of $3.38.
Prices in the state, driven upward by an artificial shortage of refining capacity, remain more than 50 cents above the U.S. average, said the Foundation for Taxpayer and Consumer Rights. That view was reinforced today by Tom Kloza, a founder and now publisher of the influential Oil Price Information Service.
Kloza was asked in a video interview posted today what the supply picture would be for the rest of the year. He responded:
“In the Rockies and east of the Rockies, there will be plenty of gasoline. …At end of summer, [there will be] a bit of a demand rally but [it] won’t be like the peaks of 2005, 2006.
“I have to caveat the West Coast. The West Coast is its own animal, The West Coast has much lower production at the moment than it had last year, and significantly higher demand. The thing that bailed out the West Coast from being a problem throughout last summer was the fact that people drove less when retail prices went to $3.40 in some states. You really don’t know where that threshold where people will change behaviors is going to come this year.
“The West Coast going to be the most compromised market, not just for the rest of this year but for the rest of the decade.”
The interview is posted on a Web site aimed at convenience retailers, including gasoline station operators. The quote above comes at the end of the short interview. (See the full interview here.)
“Refiners in California are in such a sweet spot that no matter how little gasoline they refine, they’ll make more money,” said FTCR Research Director Judy Dugan. “It’s up to lawmakers and regulators to return some balance to the suffering consumers, who are once again paying $50 and up to fill their minivan tanks.”
It is the refusal of large refiners, including Chevron, ExxonMobil and Valero, to expand capacity that keeps prices half a dollar higher in California than in the rest of the nation, said FTCR. The widening gap between the price of crude oil and the price of gasoline, especially in California, has produced record refining profits.
“Oil companies built this system to keep supplies tight,” said Dugan. “They know they will reap ever-higher overall profits without having to make or sell more gasoline. With only a handful of companies making most of the refined gasoline in California, they don’t compete, they cooperate. The usual laws of supply and demand are broken.”
FTCR called on California lawmakers to legislate regulation of refinery production and of gasoline supplies in storage, which would effectively smooth out price spikes. FTCR added that the long-term solution must include more use of renewables and less use of fossil fuels. But in the meantime, only regulatory action will force refiners to supply the state with sufficient gasoline to prevent even routine maintenance from pushing up the price at rate of nearly a dime a week.
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