California drivers who take to the freeways this Labor Day weekend are enjoying some of the lowest gasoline prices since February.
Throughout the summer, gasoline prices have fallen steadily. The price of unleaded regular gasoline in Los Angeles is just over $1.12 a gallon, down from May, when prices climbed to $1.23 a gallon, the highest price this year, according to the North Hollywood-based Lundberg Survey.
Nationally, gasoline prices are down, too, but only slightly. The average price for unleaded gasoline in the country is just over $1.18 a gallon, down from $1.20 in July, when prices peaked.
"Prices have been inching downward, but remember how far they went up," said William Randol, an analyst with the investment banking firm First Boston in New York. Randol said the industry kept prices high through the spring and--in the rest of the country--through the summer by keeping supplies low.
Industry sources say a flood of imports--attracted to California by unusually high prices this spring--helped drive prices down this summer. Normally, between 10,000 and 50,000 barrels of imported gasoline arrive on the West Coast each week. This year, the amount has been as high as 300,000 barrels a week.
"It's a big, big number," said George Naniche, an economist with Chevron in San Francisco. "When you talk 100,000 (barrels), you're beginning to talk about 10% of the gasoline consumption on the West Coast."
Passed on Savings
That oversupply of gasoline pushed wholesale prices down from a high of just over $1.18 in March to just over 81 cents this week, according to the Lundberg Survey. Gasoline dealers passed on most of the savings to remain competitive, said Steve Shelton, director of the California Service Station Assn.
"Prices have been on a roller coaster," he said.
Industry sources say the roller coaster may now be headed for another climb, however. The flood of imports appears to be waning slightly, they say.
Just as significantly, gasoline stocks--the amount of gasoline on hand in the West--have dropped from a high of 31.1 million barrels in July to 29 million barrels last week. West Coast wholesalers say prices become firmer when inventories settle at around 28 million barrels. Shelton said dealers have been notified that Chevron is raising its price by a penny a gallon.
"Prices are firming nicely," said Bill Floyd, senior marketing vice president at Tosco, a Santa Monica-based independent refiner.
Floyd said that, although the wholesale price did drop, the spot price--the price of gasoline not sold under contract--rose "fairly substantially" this week. He said the spot price in Los Angeles for unleaded regular gasoline was just over 86 cents a gallon, up from 79 cents a gallon the week before.
Floyd said he believed that West Coast marketers will soon start building up their inventories, and that increase in demand will put upward pressure on the wholesale price. Unleaded gasoline stocks have dropped to a 16-day supply on the West Coast, he said.
"Normally, they try to maintain a 30-day supply," he said, adding that he didn't expect a large jump in the wholesale price.
"It will probably hold steady until later this year," he said.