Gas Prices Forecast to Hit Record Highs in U.S. This Summer

LA Times

April 9, 2004

In California, the average price for a gallon could pass the $2.145 seen in March '03, officials warn. A refinery outage could boost it more. By Elizabeth Douglass and Arlene Martínez, Times Staff Writers

Lather Perkins may want to reconsider that trip to Utah this summer. And Maria Claros might as well hang up her gig at the Gardena swap meet.

Summer is coming, and federal officials say it will bring record gasoline prices right along with it. Nationwide, pump prices are expected to climb to an average of $1.81 for a gallon of self-serve regular in late June, averaging $1.76 over the summer, according to an Energy Information Administration forecast released Thursday.

In California, the average price will probably be far higher, the EIA said, almost certainly exceeding the record $2.145 in March 2003. And that's assuming there are no refinery outages or any other shocks.

"The entire country becomes scary in the summertime," said Tom Kloza, chief oil analyst at Oil Price Information Service, a company that tracks petroleum markets. In California, he added, "you'll flirt with or possibly surpass the highs toward the end of the summer."

That's not happy news for Perkins, whose monthly gasoline bill is $240 because he commutes from his home in Silver Lake to his teaching job in Wilmington. Filling up his aging Toyota truck with $2.23 regular Thursday, Perkins worried that if the prices went higher, he wouldn't be able to afford a planned road trip to Utah.

For her part, Claros has already had to take a part-time job to supplement the proceeds from the clothes she sells in Gardena. Most days, by the time she has picked up clothes in West Covina and the San Fernando Valley and headed for the swap meet, "I would have spent more in gas than what I would have made," said Claros, who Thursday was feeding $2.43-per-gallon regular to her fuel-chugging GMC van at a Chevron in downtown Los Angeles.

EIA Administrator Guy Caruso said the statistical agency's gasoline summer prediction reflected the high cost of crude oil — the benchmark U.S. grade closed at $37.14 a barrel, up 99 cents, in trading in New York on Thursday — and the relatively low level of gasoline inventories around the country. Pump prices also are affected by forecasts for sky-high demand this summer and the supply complications added by the introduction of new gasoline formulas in New York and Connecticut.

Prices could fall short of the expected highs if the cost of crude drops significantly or if gasoline imports pick up markedly, Caruso said, whereas things could be worse than expected if there are refinery or pipeline disruptions.

If the federal government were to grant waivers to its requirement that retail gasoline include an oxygenate such as ethanol, some of the price pressure could be eased in the longer term, Caruso said. Gov. Arnold Schwarzenegger has told regulators that exempting California from clean-air rules would lower prices and increase refiners' flexibility in producing gasoline.

But Caruso said there was no hope for this summer: Most refiners, including those serving California, already have committed to ethanol purchases through the driving season and are unlikely to alter those plans now.

On Monday, California's average gasoline price jumped to $2.126 for a gallon of self-serve regular, the highest average since early 2003, according to EIA's weekly survey of retail prices. The average has been above the $2 mark for seven weeks.

Although oil companies cite high crude oil prices as the primary driver for the rising cost of gasoline, experts say the cost of the raw material for gasoline is just a small part of the run-up in California.

The price of the nation's benchmark crude started the year at just above $30 a barrel and surpassed $38 in mid-March on the New York Mercantile Exchange. Rounding up to make that a $9 increase, experts say that should produce an increase of 22.5 cents a gallon of gasoline — meaning that crude costs account for less than half of the 53-cent increase in fuel prices California has seen over the same period.

Joe Sparano, president of the Western States Petroleum Assn., an industry trade group, said retail gasoline prices were a reflection of market conditions, including the price of crude, regional supply and demand factors, and competitive markets.

"All of the economic factors that have been present in the market are continuing into April, and unless those factors are reversed, unless the crude side moderates, there's still going to be the potential for prices to stay up," he said.

Wall Street analysts say refineries in California are enjoying hefty profits. In an April 5 internal report on operations at Shell Oil Co.'s U.S. refineries obtained by The Times, an executive typed a single word to describe the refining margins: "Wow."

Truckers and others who buy diesel are hurting the most at the moment in California, as scattered shortages have caused the cost of diesel to soar above the price of gasoline, a very rare occurrence.

"Each day we're setting new records for diesel," Kloza said. "It's so profitable to make gasoline right now that any refinery manager is going to get slapped around if he doesn't make as much gasoline as he can, even if it means he doesn't make enough diesel."

Consumers like Enrique Sanchez will be watching carefully.

The cost of gasoline helped persuade Sanchez to purchase a small Mitsubishi Lancer in December. His job in sales takes him to Riverside, Santa Ana and the San Fernando Valley. Even with great gas mileage — more than 30 miles per gallon — he still spends about $60 a week tanking up.

"It's awful," he said. "I hope they lower the prices soon.",0,6040647.story?coll=la-headlines-business