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Gas Hits New High in Los Angeles Area

Posted on: Thursday, 1 September 2005, 12:00 CDT

Sep. 1--With a quarter of the nation's oil industry in disarray, Los Angeles-area gasoline prices hit a record high on Wednesday and analysts expect more increases as the devastation from Hurricane Katrina continues to roil energy markets.

A gallon of regular sold for $2.834 on Wednesday, jumping 2.5 cents overnight and could be a preview of what's to come, said the Automobile Club of Southern California.

The spot market price for a gallon of regular, which impacts retail prices, has soared 32 cents since Monday.

Some Los Angeles-area stations were selling regular gasoline for $3 a gallon by midday Wednesday, leaving both station owners and drivers unhappy about the development.

"I had regular at $2.69 on Monday, now I'm at $2.87," said an exasperated Abul Kalam, who owns a Mission Hills Valerio station. "Now, I don't even make a cent a gallon, because people are using their credit cards. We can't even afford employees -- it's just me and my wife today."

The price of crude oil moved into the $70-a-barrel range this week, but settled down 87 cents to close at $68.94 on Wednesday, 82 cents under Tuesday's record close.

With refiners still assessing damage to their Gulf Coast facilities, President George W. Bush on Wednesday ordered the release of oil from the Strategic Petroleum Reserve. The move is designed to calm fears of an oil shortage while the eight impacted processing plants are repaired.

The Energy Department has not yet decided how much oil to release from the stockpile stored in five underground salt caverns.

But serious concerns about the availability of refined products such as gasoline and diesel fuel remained. With no clear picture of the extent of damage to refineries and off-shore drilling platforms, oil companies have begun limiting deliveries in certain Midwest and East Coast markets to ensure they're able to meet supply contracts.

California gets none of its crude oil and only a tiny percentage of its gasoline from the affected area so it faces far less of a supply problem.

"It's very bad right now," said Denton Cinquegrana, West Coast market editor for the Oil Price Information Service. "California may end up a bargain compared to some markets. Chicago's over $3 a gallon (for gasoline) in the spot market, the Gulf Coast's at $2.75."

Much of the fear of a shortage is unfounded, according to Claudia Chandler, assistant executive director for the California Energy Commission. The state's refineries are producing over 1 million barrels per day, up 4 percent from a week ago, alleviating concerns stemming from reports last week of problems in Northern California.

But the state's gasoline market often reacts more to rumors than reality, she noted, as traders buy up available supply on the fear that prices will go even higher.

The real concern, Chandler said, comes from natural gas. Since 85 percent of the state's supply comes from outside the state, California gas and energy companies could get into bidding wars for that commodity. On Wednesday, it traded for $12.16 per billion cubic feet, up from $9.80 on Friday.

"Since 40 percent of our electricity generation comes from natural gas power plants, we could see increases of wholesale energy prices," Chandler said. "We need to start conserving natural gas and dampen these prices."

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Source: Daily News - Los Angeles, California

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