Analysts Split Over Pricing Gas
Aug. 31–State wholesale gas prices surged to unprecedented levels Tuesday, setting the stage for average pump prices to pass $3 throughout the state this holiday weekend.
Monday’s devastating storm in the Gulf region, from which California imports about 3 percent of its gasoline, prompted a slew of refiners to cease operations there for the next several weeks. Spot market prices climbed about a quarter Tuesday, trading roughly between $2.50 and $2.60 per gallon, according to Oil Price Information Service. That follows a 13-cent increase Monday.
As a rule of thumb, retail gasoline runs about 60 cents above spot levels, suggesting prices could hit $3.10 to $3.20, said Denton Cinquegrana, an analyst with OPIS.
“It’s going to translate rapidly into the retail market,” Cinquegrana said. “I’m pretty sure all of California will be paying $3 over the weekend, if not sooner.”
Not all analysts agreed on this point, however.
David Hackett, president of fuel consulting firm Stillwater Associates, predicts it will take at least a month for the spot market upswing to translate to the retail level. Further, he believes the shift on the spot market is an overreaction to the news in the Gulf region and does not expect the full increase to flow to the pump.
In either case, the upward price pressure could not have come at a worse time for state drivers, who have been paying record levels for gasoline for much of the summer. Spot level prices climbed about 20 cents last week following a fire at the Golden Eagle refinery in Martinez, which damaged a key gasoline manufacturing component.
On Tuesday, the average price for a gallon of regular unleaded stood at $2.801 in Oakland and surrounding areas, up from $2.589 a month ago, according to AAA’s Daily Fuel Gauge Report.
Two factors could temper further increases, however. First, Labor Day traditionally marks the end of the summer driving season, when demand begins to drop off. Second, in mid-September refiners typically begin switching back to winter grade gasoline, which costs less to make and produces a higher yield of gasoline per gallon of crude oil.
A state senator weighed in on Tuesday in the debate about high prices at the pump. Sen. Joe Dunn, D-Garden Grove, introduced a constitutional amendment to place the gasoline industry under the regulation of the state Public Utilities Commission. Dunn argues that high prices are due to manipulations from refiners. Californians now pay the highest gas prices in the country, outside of Hawaii, where the public utilities commission just instituted price caps.
Dunn’s proposal brought an immediate outcry from refiners. Jack Coffey, director of California government affairs for San Ramon-based Chevron, said federal price controls between 1973 and 1981 only led to shortages in supply. Limiting prices in any way in the state would only force refiners to send their products elsewhere, he said.
“I don’t think people are willing to trade waiting in gas lines and not getting all the gas they want for arbitrary price levels,” said Coffey.
The San Jose Mercury News contributed to this story.
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