County’s price surge outpaces rest of U.S.

The San Diego Union-Tribune

A stunning run-up in gasoline prices has pushed costs at San Diego County stations to an all-time high and set off spot boycotts by some independent retailers who accuse the petroleum industry of gouging.

The average price for unleaded regular in the county is $3.07 a gallon, according to a survey yesterday by the Utility Consumers’ Action Network.

That’s about one cent more than the previous high in September, just after Hurricane Katrina shut down a significant amount of U.S. gasoline production.

Prices countywide have risen about 14 cents in the past week and 40 cents in the past month. Two years ago, the average price was $2.03, a past UCAN survey showed.

That puts San Diego gas prices on a faster elevator than the nation as a whole. The American Automobile Association says the national average has risen 32 cents over the past month, to $2.83 per gallon.

It appears just a matter of days or hours before pump prices in the county surpass California’s inflation-adjusted all-time high of $3.08 in 1981, according to the California Energy Commission.

Local independent retailers yesterday continued to report sharp increases in their costs for fuel, a trend that is likely to translate into even higher prices at the pump in coming days. Some independents have even stopped selling gasoline in protest of the prices and to avoid being accused of gouging by motorists.

Petroleum industry sources insist that gas prices reflect the forces of supply and demand. Consumer advocates contend the public is being gouged by oil companies that can arbitrarily raise prices beyond any increase in their costs.

To be sure, oil prices have soared, with the price of crude now almost $72 a barrel on world markets, 37 percent higher than a year ago.

But both the petroleum industry and consumer advocates agree that the rise in gasoline prices can’t be blamed solely on higher crude oil costs.

Retailers such as Dave Whitlow of Spirit Auto Center in Lakeside blame what they say is a lack of competition.

Whitlow said he paid $3.04 per gallon wholesale Monday and got a quote of $3.27 per gallon two days later. Bargain hunting is impossible, he said, because quotes at the half-dozen or more wholesalers he calls for comparison prices are within one-tenth of a cent of one another.

John Felmy, chief economist for the American Petroleum Institute, says a bevy of wholesalers quoting nearly the same price indicates a healthy market.

“There is only one price in a competitive market,” Felmy said. “You won’t find very much of a differential.”

He acknowledged that refinery margins — the difference between the cost of the crude oil needed to produce a gallon of gas and its price — had nearly doubled since the first quarter of this year. This raises the possibility that refinery profits have seen a comparable increase.

In California, for example, the state Energy Commission calculates that refinery costs and profits now amount to more than 60 cents per gallon.

But Felmy cautioned that not all of that margin translated into profits because refiners were paying higher costs for additives, such as ethanol. Felmy urged the public to see gasoline refining as an “up and down” business.

“Refiners lost money in 2002, and they probably lost money in February of this year,” Felmy said.

The industry economist insisted that the market was functioning as expected, with gasoline consumption nationwide beginning to dip in response to the high prices.

A continuation of that trend, he said, “could soften prices a lot.”

Jamie Court, president of the Foundation for Taxpayer and Consumer Rights in
Santa Monica, said the petroleum industry’s profits are headed in just one direction — up — after already rising to record levels last year.

The foundation released a study this week contending that industry profits per gallon have nearly doubled this year alone.

Court said even that estimate was conservative because it used current market
prices for crude oil. But major petroleum companies, he added, are paying lower
prices for petroleum because they produce it themselves or buy it on long-term
contract.

So crude oil, he said, plays only a small part in the gasoline price surge.

“This is all about the oil companies shorting the market,” said Court, who argues that refiners prefer to keep gasoline in short supply to boost prices. “Why would they produce more, when every time they cut back on production, prices go through the roof?”

Calls to San Diego’s largest gasoline supplier, BP-Arco, were not returned yesterday.

In California last week, gasoline production fell 10 percent because of planned refinery maintenance and unplanned outages, according to the state Energy Commission. The commission also said the export of gasoline from California refineries to other states increased sharply last week, though a spokesman noted that is a cyclical event.

Nationally, the Energy Information Administration expects gasoline production to increase soon, as several refineries damaged by last year’s Gulf Coast hurricanes return to full production, along with increases from other refineries resuming full production after maintenance.

Meanwhile, several independent stations across San Diego County have stopped selling gas to protest the escalating prices set by refiners.

At Kensington Auto Center on Adams Avenue, the pumps were shut down yesterday after management decided not to boost prices to maintain the station’s profit margin and to avoid penalizing loyal customers.

Signs taped to pumps informed motorists that the outlet was staging a boycott against the oil industry to “reduce all gas prices.”

“To break even, we’d have to charge $3.39 a gallon” for unleaded regular, lamented station manager Natheer Jacob.

On Wednesday, the station had sold unleaded regular for $3.09 a gallon.

While Jacob talked, several drivers rolled their cars to the pumps unaware of the shutdown.

“It’s very inconvenient. I’m almost out of gas,” said Liz DaCosta, a nearby resident who regularly fills up her Ford Explorer at the station.

A clerk directed DaCosta to a nearby Mobil station on El Cajon Boulevard.
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Staff writer Frank Green contributed to this report.