Pump Price Upturn Unlikely to Hold, Fuel Experts Say
California motorists fearing a repeat of last summer’s gas price spikes can rest somewhat easy--for now. Recent increases at the pump aren’t permanent, fuel experts say, and California is in good shape as the country heads into its busiest driving season.
Although the OPEC cartel is expected to trim crude oil production about 3% at its meeting today in Vienna, effects of the cut shouldn’t pinch Californians too much, said Mark Mahoney, West Coast expert with consulting group OPIS Energy. Expectations of the cut by the Organization of Petroleum Exporting Countries were figured into the market more than a month ago, he said.
“A lot of people who predicted the $2, $3 gas prices may be backtracking,” Mahoney said. “As long as the refineries don’t blow up, California should be OK.”
Nationwide, the Energy Department expects prices for self-serve regular gasoline to average $1.48 a gallon during the peak summer driving period bookended by Memorial Day and Labor Day. That’s a nickel lower than last summer’s average of $1.53, which was a 15-year high when adjusted for inflation.
In California, current prices of $1.60 to $1.70 a gallon should remain in place for much of the summer. That’s no bargain for drivers who recall prices just above a dollar in late 1998 and early 1999, but better than prices that broke the $1.80 mark last year.
Experts say their forecasts should hold steady unless electricity outages or refinery breakdowns derail production.
Still, they caution, there’s little room for error, given the unique blend of gasoline used in California, which exposes it to trouble whenever there is a hiccup in the supply chain, and the steady decline of in-state refining capacity in the last five years.
In the last month, California drivers have seen a slight increase from $1.53 to $1.63 a gallon, according to a report released Wednesday by the Automobile Club of Southern California. The report, compiled for the club by OPIS Energy, cited lulls in production at some state refineries because of maintenance problems or routine seasonal changes.
Because California uses a special, cleaner blend of reformulated gasoline, which is slightly more expensive to produce because of the costly additive methyl tertiary butyl ether, there is little cushion should refinery or pipeline problems occur this summer.
Further, only a handful of refineries outside California can produce the state’s special blend, including makers in the U.S. Virgin Islands, Texas and Finland. Oftentimes, refiners are hesitant about shipping gasoline to the West Coast, a process that can take more than three weeks.
“California has less flexibility,” said Dave Costello, energy economist with the Energy Information Administration. “A sequence of refinery problems could pose long-term problems and cause prices to increase.”
Still, he said, refineries appear to be prepared for the traditional increase in summer demand. West Coast inventories are up about 7% from a year ago, according to data compiled by the American Petroleum Institute.
“The doom and gloom that dampened last summer is gone,” Mahoney said. “California is extremely sensitive and easily susceptible to volatile prices. Still, by now, we would have seen early indications of a price spike.”
Philip K. Verleger Jr., a Newport Beach energy economist, isn’t so sure. Threats of electricity problems and the potential for rolling blackouts across the state are still prevalent, he said. If a refinery’s power is cut for 30 minutes, production could be set back by almost a week.
“A rolling blackout early in the summer could affect prices for the remaining months,” said Verleger, of Boston-based Brattle Group. “The threat will increase as the weather gets warmer.”
Despite the somewhat optimistic view some experts see for California this summer, other regions of the U.S. could suffer price spikes should last year’s refinery problems resurface.
As parts of the Midwest, including Chicago, St. Louis and Milwaukee, continue the transition to reformulated gasoline, shipment and refinery glitches could pose problems. At times last year, their first under new clean-air requirements, those metropolitan areas hovered near the $2.50-a-gallon mark for regular gasoline.
“The new specifications threw the whole supply system off whack last summer,” said Costello of the EIA, the Energy Department’s statistical arm. “We’re assuming the logistical nightmares have been worked out. But that’s only an assumption.”
Costello said supplies in the Midwest may be too tight to meet demand, and that in turn could cause national prices to spike. Inventories in the region are down about 15% from a year ago, according to the petroleum institute.
