Oversupply Drops Price of Gasoline : L.A. Wholesale Rate Slipped 3 Cents in June, Lundberg Says
When Mobil dealer George Eskander learned that an Arco station just one block from his service station in Temple City had lowered its price by a penny a gallon, he wasted no time. “When are you going to lower my prices?” Eskander asked his supplier in the first of three urgent telephone calls that day. The answer came four days later, when Mobil knocked almost 2 cents off its dealer prices, enabling Eskander to lower his street prices--just in time for Independence Day.
Retail gasoline prices normally rise during the summer and especially during the Fourth of July weekend, a peak driving holiday. Through most of the nation, this year is no different and gas prices are up. But the West Coast is awash in gasoline, and the oversupply is driving prices down throughout the region.
High West Coast Inventories
The average price of unleaded regular gasoline in Los Angeles fell a penny a gallon in June to just over $1.22, according to the North Hollywood-based Lundberg Survey, which tracks retail gasoline prices. Wholesale prices tumbled even more, falling an average of 3 cents for regular unleaded gasoline. Along Rosemead Boulevard, where Eskander’s station is located, dealers say 2-cent price drops are common.
Much of the recent price drop is the result of unusually high West Coast gasoline inventories, according to industry sources. Nationwide, gasoline stocks are fairly low, averaging 12% below last year and 3% behind 1983 levels, according to government figures. But on the West Coast, gasoline stocks are only 3% behind last year and are 15% higher than in 1983. “There’s too much gasoline, that’s it in a nutshell,” said Bill Floyd, senior marketing vice president at Tosco, a Santa Monica-based independent refiner.
The swollen inventories result partly from a flood of imports during May and June, attracted to the West Coast because of unusually high wholesale prices.
During the week ending May 31, for example, the West Coast received 89 million barrels of imported gasoline, three times last year’s level. Gasoline imports ranged between two and three times normal levels through late April, May and June, according to the Washington-based American Petroleum Institute, a trade group. Additionally, industry sources said West Coast refineries increased gasoline production during June, contributing to the gasoline surplus.
Refiners “were making money again. So they run a lot of crude and make more gasoline to participate in more favorable market trends, and that tends to drive down the price,” said William Randol, an oil industry analyst with First Boston in New York.
Dan Lundberg, publisher of the Lundberg Survey, said the price decline may be an adjustment for the greater-than-normal price hike this spring. Retail prices in Los Angeles were between 3% and 5% higher than in the rest of the country, when the price of unleaded regular here jumped by 9 cents due to supply problems caused by the temporary shutdown of two large refineries. The price drop “brings (Los Angeles) closer in line with the rest of the country,” Lundberg said.
The region still has a ways to go, however. The American Automobile Assn.’s July 4 price survey shows that California has the highest average gasoline price in the nation at $1.35 a gallon. That’s about 9 cents more than the association’s national average of just over $1.26 a gallon.
Still, the June price drop in Los Angeles is “significant,” said Steve Shelton, director of the Southern California Service Station Assn. He speculated that few station operators would pass along to consumers the full wholesale price cut. The operators’ profit margins were squeezed this spring as pump prices rose less than wholesale prices, he said. “They haven’t been able to pass through costs, so they’re reluctant to pass through savings,” he said.
Union Oil dealer Gonzalo Villanueva said that, when Union dropped its wholesale prices by 2 cents per gallon recently, he dropped his retail prices by the same amount. “I have to,” said Villanueva, who owns a combination gas station and car wash in Temple City. “Everybody else is dropping theirs.”
George Saca, manager of a USA Petroleum station across Broadway from Villanueva’s station in Temple City, says he drives through the neighborhood three times a week to check prices and last week recommended a 1-cent drop, which the Santa Monica-based company approved.
“This street is hot,” says Eskander, the Mobil dealer, whose station is one block north of the USA station.
Market analysts in Los Angeles said Atlantic Richfield and several small independent marketers are leading the price decline. Arco’s pricing is especially aggressive, analysts said, noting that the company’s unleaded regular gasoline is between 3 cents and 7 cents below its major competitors. “But that’s nothing unusual,” said McDonald Beavers, a consultant with Los Angeles-based Whitney Leigh Co. “You’d expect them to lead the slide.”
Few experts expect the price to drop much further before the end of the summer. Tosco’s Floyd said he expects the wholesale price to firm within the next two months as imports decline and the excess supply dwindles. Most experts expect a seasonal decline at the end of the summer.
However, analysts said that forecast could be rendered obsolete if the Organization of Petroleum Exporting Countries acts to drop crude oil prices significantly at its meeting in Vienna this weekend. A big drop in the price of crude oil would probably push gasoline prices down sooner. “OPEC could change everything,” Lundberg said.
SHIFTING GAS PRICES Average retail per-gallon price of regular unleaded gasoline
Los United Month Angeles States January 111.22 109.64 February 109.52 108.66 March 118.09 111.30 April 123.50 116.87 May 123.69 118.93 June 122.68 119.76
Source: Lundberg Survey
