Don’t Expect Gasoline Prices to Return to Friendlier Levels

Toy company executive Carson Lev sells tiny cars for a living. But it’s his gas-slurping 1995 Chevrolet Impala SS that’s driving him to distraction.

Because of rising gasoline prices, Lev’s 136-mile round-trip commute from his home in Laguna Niguel to his office at Mattel Inc. in El Segundo is costing him $103 a week, up from $85 a few months ago.

“It’s taking a lot of money out of my pocket,” said Lev, a Hot Wheels marketing manager. “I make a nice living, but for most working people this is a real hit.”

In recent days, Lev and other Californians have been paying close to last year’s peak, when per-gallon pump prices stayed above $2 for 13 weeks. The advice from market watchers: Get used to it.

“You’re in a permanent trend toward higher and higher highs -- and higher lows,” said Tom Kloza, an analyst with the Oil Price Information Service, which tracks oil and gas prices. “At some point, you can’t call it a spike.”

In the last week, the price of self-serve regular jumped more than 20 cents to an average of $2.152 per gallon in Los Angeles County, according to the Automobile Club of Southern California. That’s not the record; according to Auto Club statistics, that was $2.18 a gallon, set in March 2003.

This year’s increase -- 51 cents per gallon so far -- is being blamed on a spate of malfunctions that reduced gasoline output at several of the state’s refineries. That gave a swift kick to prices that were already riding higher because of the escalating cost of crude oil, the base ingredient in gasoline.

Today’s gasoline supply troubles have spread to diesel and jet fuel because both are produced for California by 13 overextended refineries. Jet fuel price hikes are being passed on in the form of costlier airline tickets and higher air freight fees, while the rising cost of diesel affects farmers and companies whose products are hauled in semitrailers and trains.

“Transportation is such a fundamental thing, it can cut into lots of activities,” said Joe Hurd, senior economist at the UCLA Anderson Forecast.

At Downey Plumbing, Heating & Air Conditioning, which had been spending about $3,000 a month on gas for a fleet of two trucks and eight vans, General manager Joe Keays figures the bill could increase by 20%, or $600.

In a highly competitive market, Keays said, raising his prices wasn’t an option. “How do we offset that? We just have to batten down the hatches and find other ways to cover those costs.”

If steep fuel prices linger, they could dampen the tourism boom expected to accompany this summer’s debut of a bevy of new attractions at Southern California theme parks, said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp.

“If gas prices are high, people might say, ‘Do we really want to go there?’ ” Kyser said.

Although the latest gasoline price run-up may begin to ease soon thanks to a recent decline in crude oil prices, experts don’t see anything on the horizon to improve the precarious balance in California between supply and demand.

The crux of the problem is that there are just 13 refineries straining to feed a state with the world’s most voracious appetite for petroleum products.

Even operating at near-peak capacity, the refineries can’t make enough to supply the nearly 42 million gallons consumed each day in California plus 5.3 million gallons the refineries send daily to Nevada and Arizona.

The shortfall is filled with imported gasoline from the handful of refineries around the country that can follow California’s exacting cleaner-burning fuel recipe.

“When everything’s running right and the demand isn’t too high, we have enough capacity, but that doesn’t happen very often,” said Severin Borenstein, director of the University of California Energy Institute. “Usually something goes wrong.”

Population growth and consumers’ penchant for big cars worsen the problem.

There are no plans for new refineries or major expansions. In fact, this fall, Royal Dutch/Shell Group will close its Bakersfield plant.

Other factors setting the stage for chronic bouts of gas-price hikes include new competition for imports of specialty gasoline blends and the fact that refiner profits rise when gasoline is in short supply, giving them a powerful disincentive for keeping the market flush with fuel.

“This situation, without a change, is not going to get better soon,” said Joe Sparano, president of Western States Petroleum Assn. The market is not being manipulated by oil companies, he added, saying the problem is that “demand is outstripping supply.”

Others aren’t so sure. Sen. Barbara Boxer (D-Calif.) has asked the Federal Trade Commission to investigate whether oil companies are somehow stage-managing the state’s gasoline market.

Rep. Doug Ose (R-Sacramento) plans a hearing this spring into the gas supply problems and has asked the Energy Department to conduct a study of the price spikes in 2003.

“This is one of those basic ingredients that has to be paid attention to,” Ose said. “We cannot afford to take our eye off the ball on fuel.”

Small-business owners could be hurt the most by a prolonged increase in prices, because they get by on slim profit margins.

Kung Pao Bistro owner Jimmy Chi said rising gas prices may force him to raise the wages of the 15 drivers who use their own cars to deliver take-out from his restaurants in West Hollywood, Studio City and Sherman Oaks. Patrons won’t stomach a price increase, so Chi will eat the cost.

“This is going to be a factor for everything,” he said. “It’s affecting a lot of small businesses.... It will be tough for us.”

Some larger businesses, such as the shipping company UPS, won’t be immediately affected by the price hikes because they have long-term gas contracts and get discounts for buying in bulk. Others are now pushing conservation measures.

Southern California Edison consumes 5 million gallons of fuel a year through the utility’s fleet of 5,000 vehicles, according to spokesman Gil Alexander. The company recently started prioritizing trips to cut mileage, increasing teleconferences and reminding drivers to turn off engines when they are not needed.

Some believe motorists hold the key. “If people can just back off just a little bit, collectively, that will make a difference,” said Claudia Chandler, assistant director of the California Energy Commission.

Riding mass transit, buying hybrid vehicles or shunning SUVs would help, but economists say big-ticket purchasing decisions and commuting patterns are resistant to change.

Michael Flynn, director of the University of Michigan’s Office for the Study of Automotive Transportation, said the last time motorists turned away from perceived gas guzzlers was at the start of the first Gulf War in 1990, as fuel prices soared.

“The sale of light trucks took a plunge for about a month or so, the minivans, early SUVs, the less fuel efficient vehicles were hit,” he said. “But it was pretty brief. People went right back to their normal purchasing habits.”

For now, though, the signs are encouraging at the MTA, where use of rail and bus systems is on the rise.

Although officials said it was too soon to know how big a role gas costs have played, ridership is recovering faster than expected after a strike that ended in November and an increase in some fares in January. Ridership usually takes at least six months to recover from such disruptions, MTA spokesman Marc Littman said.

In addition, the MTA’s rideshare program has been flooded with phone calls.

“They are saying, ‘Oh my gosh, it’s getting crazy,’ ” said Sarah Zadok, a rideshare supervisor. “ ‘We need to find a better way to get to work.’ ”

Michael Friend, a public health administrator in Northern California, commutes 160 miles a day in his turbo-charged Buick Grand National and often logs an additional 100 miles a week in work trips. It’s an expensive regimen already, he said, and higher gas prices could add $585 to the annual tab.

“I don’t get the opportunity to deficit-spend like the government does,” Friend said. “So it means cutting things out like going out to dinner or buying that new CD. I’m not in a place where I can take public transit, and all I can say is: Ouch.”