Gas Prices Rise by the Hour in L.A.; Refiners Cut Back

Oil and gasoline prices jumped higher and supplies tightened on the West Coast on Thursday as Atlantic Richfield, Exxon and British Petroleum all announced refinery cutbacks and said they were unable to ship enough crude from Alaska to meet the needs of their customers.

The sudden interruption of Alaskan crude oil shipments in the wake of last week’s big oil spill drove some wholesale prices up by the hour. Gasoline sold on the spot market in Los Angeles for 90 cents a gallon in the morning and fetched $1.08 by afternoon, refiners said.

“I’ve been in the business for 20 years, and I’ve never seen it jump up that fast,” said William Floyd, senior vice president for marketing at Tosco Corp., a Santa Monica-based firm with a large independent refinery in the San Francisco Bay area.

The situation stood to get worse before it gets better, oil company officials said, unless the Coast Guard allows a full resumption of tanker traffic soon past the crippled Exxon Valdez in Prince William Sound. But they said they expected no serious shortages.

Spot sales of gasoline account for a small fraction of the gasoline trade, refiners say, and such prices are the most volatile. Most gasoline is sold wholesale on longer term contracts.

The $1.08 spot, pre-tax price commanded Thursday for unleaded regular would translate into a pump price of as much as $1.35 a gallon with taxes, profit and other costs.

Actual pump prices climbed by another 3 to 5 cents a gallon on top of previous increases of about a dime since the oil spill on March 24, according to scattered reports from independent dealers. Increases at major-brand service stations were smaller.

The sudden leap in prices was addressed cautiously by oil company officials who feared that motorists and big industrial oil users would begin to stockpile as they did in 1979, triggering disastrous regional shortages and gasoline lines.

“We’re not talking crises or shortages at this point,” said an Arco spokesman. “It’s not like ‘79” when the Iranian revolution interrupted shipments from the Middle East. “This is in our own national hands to correct.”

He was referring to the halt to oil shipments in the Valdez harbor ordered by the Coast Guard after the oil spill. Tanker traffic resumed at the rate of one vessel a day Tuesday, compared with a typical three to four per day. Storage tanks there are full, and Alaskan North Slope production has been cut by 60%.

Arco said its first tanker since the oil spill left Valdez Thursday, carrying 1.4 million barrels and bound for Cherry Point, Wash. It said only three tankers have left Valdez in the past seven days versus a normal 20 to 25.

“The Coast Guard is taking a conservative position” on the resumption of tanker traffic, said Arco spokesman Albert Greenstein. “We certainly don’t want a reckless situation. It is something we’re discussing with the Coast Guard.”

California relies on Alaska for about 40% of its oil.

The anticipation of tight California supplies, coupled with reports of crude oil production cuts in one Arab oil nation, sent futures prices for crude oil soaring by 61 cents a barrel and gasoline futures by 3 cents a gallon on the New York Mercantile Exchange.

Arco announced a 35% cutback in production at its Cherry Point refinery, Exxon declared a 15% reduction at its San Francisco area refinery and BP said it would trim output by 20% at its refinery in the Puget Sound.

More broadly, Exxon and BP declared force majeure on their Alaska crude oil contracts, signifying that they won’t be able to deliver all the oil their independent customers ordered for April. Force majeure is a legal mechanism whereby a supplier can escape terms of a contract due to circumstances beyond its control.

Officials at BP America in Cleveland, the U.S. unit of London-based BP, said the company currently hopes it can deliver 80% of the oil ordered by its six West Coast customers, whom it wouldn’t identify.

Exxon USA, based in Houston, said its normal complement of 400,000 barrels per day of Alaska crude oil, all bound for the West Coast, will be cut to 320,000-340,000 barrels in April. More than half goes to other refiners.

Exxon and BP both said they intend to spread the limited oil supply to where it is needed the most, and that their own refineries will be short-changed the same as their other customers.

Arco announced no production cutbacks at its second California refinery, in Carson, but described the supply situation in Los Angeles as generally tight.

The day-to-day uncertainty creates the biggest problems for independent refiners such as Tosco, which normally buys about 50,000 barrels of crude oil per day from Arco and then sells a fixed share of its refinery production back to Arco as gasoline.

Tosco is already operating below its capacity because of scheduled maintenance, said Floyd, which means it is supplying only about 50,000 barrels per day to independent retailers instead of the usual 60,000. He said prospects for maintaining that production are highly uncertain.

“We had a fair amount of inventory when this problem developed,” he said. “But we’re in one of those times where you’re really not certain what tomorrow will bring.”

Other companies juggled schedules and scrambled for alternative supplies. Unocal said it advanced by a week a small, scheduled maintenance-related cutback at its Los Angeles refinery. Chevron said it stepped up purchases of imported crude and gasoline for its California refinery operations. Both Unocal and Chevron said they had no shortages.