Records at pump may not be far off

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The Oakland Tribune

The Bay Area’s average gas price shot up 25 cents in the past month to $2.36 a gallon, approaching an all-time high locally, AAA of Northern California said Tuesday.

“Every day prices are going up, in some cases significantly,” AAA spokesman Sean Comey said. “I’ve seen gas stations where the price has changed more than 10 cents overnight.”

The Bay Area average for a gallon of regular gasoline is 45 cents more than a year ago.

According to AAA, the average price of gas in California is $2.34 a gallon, also up 25 cents from last month.

“If the trends continue, it seems very likely we will set a record this week,” Comey said.

Usually gas prices hold steady or dip after the peak summer driving season, but they have gone up this autumn as oil prices have surged, fueled by a mix of strong demand, supply concerns and speculation. Crude oil future prices reached $54 a barrel for the first time Tuesday before closing the day down $1.13 to $52.51.

Crude oil prices have risen about 80 percent since the start of the year and seem poised to go even higher, Comey said. Every dollar increase in the cost of a barrel of crude oil tends to raise gas prices by 2.5 cents a gallon. So don’t be surprised if the June 1 state record of $2.37 a gallon is broken.

“It could get worse before it gets better,” Comey said.

The pain at the pump is especially pronounced in California, where the average price is 37 cents above the U.S. average of $1.97 a gallon. Why? The competitiveness of California’s petroleum industry was the subject of a day-long state Energy Commission committee workshop Tuesday in Sacramento.

California has 13 refineries that make reformulated gas, which often are producing at near capacity. A refinery hasn’t been built in the state in 35 years. Demand continues to grow as the state adds people and more gas-guzzling SUVs. Add in record crude prices and increased global demand, and something has to give. Lately it has been higher gas prices and record profits for oil firms.

In the last decade, the state has shifted from a net exporter of gasoline to a net importer, and imported gas costs more, said Severin Borenstein, director of the University of California Energy Institute.

While scarcity of supply is part of the problem, there are other factors, Borenstein said. He produced a report saying that refiners have the ability to exert market power — to try to profitably increase the market price of gas — but that it is difficult to prove and not illegal to do.

Oil industry consultant Philip Verleger countered that the refiners do not have market power, as power is spread across the West Coast. He bristled at comparisons to California’s energy crisis.

“Gasoline is not electricity,” Verleger said.

The solution is to increase supply, which can be aided by streamlining permitting, Verleger said. Also, the state should drop its goal of reducing gas demand in 2020 by 15 percent, which “chills the climate for investment in infrastructure,” he said.

But Tim Hamilton, a petroleum industry consultant who has issued gas pricing studies with the Foundation for Taxpayer & Consumer Rights, said oil firms do have market power.

“It’s the market power of an oligopoly that benefits jointly together by a rise in prices,” he said. “The economic reality we have today is it is not in the industry’s best interest to adequately fulfill our needs because it would cause profits to fall.”

Joe Sparano, president of the Western States Petroleum Association, disagreed.

“It doesn’t make sense for companies to cut production when prices are up,” he said. “You cut production when prices are low.”

California’s gas prices probably will reach record levels next week, Energy Commission spokesman Rob Schlichting said. Not only are crude oil prices up, but California’s refinery production is down slightly, he said. There should be some relief in November, as refiners switch to a less-costly winter blend of gas, he said.

According to AAA, Northern California’s highest average gas price was in South Lake Tahoe at $2.55 a gallon; the lowest was in Tracy at $2.26 a gallon. Nationally, the highest average gas price was in Wailuku, Hawaii, at $2.66 a gallon; the lowest was in Greenville, S.C., at $1.83 a gallon.

“Twenty-five cents a gallon is going to put a dent in your family budget,” AAA‘s Comey said. “This has a real economic impact on a lot of families.”
Alec Rosenberg can be reached at 208-6445 or [email protected]

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