Independent Refiners Put Squeeze on Gas Stations With Rapid Price Hikes

Gary Lazar, who operates 150 independent service stations in and around Los Angeles, is about at the end of his gasoline hose.

The independent refineries from which he buys gasoline have raised their wholesale prices dramatically in the last week or so, sometimes twice a day. Last week, he was paying about 70 cents a gallon for regular unleaded; this week, the price is more than 80 cents.

Sometimes, Lazar said, he is finding it virtually impossible to buy enough gas to fill his tanks. As a result, he is short of cash and on the verge of shutting down completely, he said.

“We’re near death,” said Lazar, who owns California Target Enterprises in Downey.

Other independent service station operators tell much the same story. Despite falling prices for crude oil, from which gasoline is refined, the state’s small independent refiners have jacked up prices significantly or have told station operators that gasoline is simply not available.

It’s not clear how much the current wholesale price spike among the independent refiners will affect consumer prices, which have remained steady or risen slightly over the last few months despite falling crude prices.

The marketers who operate service stations accuse the refiners of price-gouging to boost profits while crude prices are low--around $17 a barrel, compared to $23 in January.

“A week ago, they were begging me to buy gas, and I was paying 69 cents (a gallon),” said Ron Appel, president of United Oil Co. in Carson, which operates 36 service stations. “Today, they’re charging 83 cents, and it’s going up two or three times a day.”

The refiners can do that because the major oil companies are buying up surplus gasoline from the independent refiners at a premium, creating artificial shortages with the intention of undercutting independent marketers, added Bill Wright, president of Wright Oil Co., which operates 50 stations in Southern California and Nevada.

Independent refiners confirm that their prices have shot up by 8 to 10 cents in the last week but deny that they are price-gouging. Instead, they argue that there is a real shortage of non-contract gasoline for sale. (Unlike independent service station operators, major oil company service stations buy gasoline under contract from the oil companies and don’t have to go to the open market for supplies.)

The refiners blame speculators who are buying up barrels of gasoline in anticipation of higher summer demand. That speculation is fueled by rumors of refinery problems as well as by actual shutdowns. A power outage earlier this week idled the Golden West refinery in Santa Fe Springs, which normally produces about 24,000 barrels of gasoline per day. The refinery was expected to return to service late Thursday night or today, a spokesman said.

The refiners also blame shortages on strong demand for gasoline by distributors and marketers as consumer demand strengthens in the busy summer driving season. Inventories of gasoline on the West Coast have already fallen to about 28 million barrels last week from 33.6 million in January, according to the American Petroleum Institute.

Buying by major oil companies is not that much of a factor, added most of the independent refiners interviewed.

“When we lost money in the first quarter, no one said anything,” said Frank Sisti, president of Ultramar Inc., which operates a 45,000-barrel-a-day refinery in Wilmington. “But I don’t think we’re gouging; you don’t stay in business if you’re gouging.”

Independent refiners and marketers account for only a fraction of the total gasoline market in California, and the major oil companies have not raised refinery prices as much as the independent refiners, analysts said.

Still, the panic among the independent service station operators shows how much the market for gasoline in California has changed. Demand is growing, refinery capacity has shrunk and the major oil companies control more of the market, analysts said. That leaves independent refiners and independent marketers to scrap over a shrinking amount of business.

A check of prices at a handful of Los Angeles area independent refiners Thursday turned up wholesale prices for unleaded regular gasoline between 81 and 83 cents a gallon. Many said the product was not available at any price.

By contrast, Atlantic Richfield Co. was charging 68 to 71 cents a gallon for the same fuel, said Appel, who operates about 20 Arco-branded stations and who buys gasoline from Arco’s Carson refinery.

The price spike by independent refiners recalls similar price hikes shortly after the oil spill from the Exxon Valdez last March. This time, however, there was no catastrophic event to trigger shortages, analysts said.

“It’s not an unusual situation,” said Ed Rothschild, energy and environment policy director with Citizen Action, a Washington-based consumer advocacy group. “There’s no evidence of a grand conspiracy, but what you have is a system where competition is reduced, the majors are bigger and their power over regional markets has strengthened.”

The situation could well repeat itself in future years, observers added. “One reason is that we’re running precariously close to (refinery) capacity, and excess is almost nonexistent. . . . There’s not enough refinery capacity for growing demand,” said Richard Bilas, a state energy commissioner.