Gas Prices Are Expected to Remain Steady
Defying a trend that has aggravated California commuters and vacationers for years, gasoline prices have dropped in the weeks leading up to this Memorial Day, the traditional start of the summer driving season.
Signaling even more good news, prices are expected to remain steady, barring a refining mishap or supply shortage triggered by a national or world event such as the continuing conflict in the Middle East.
Prices are well below last year’s record highs: The state average for regular unleaded hit $1.95 a gallon the week of May 14, 2001, although remote towns like Eureka exceeded $2 a gallon.
“Unless there should be an important glitch in supply of finished gasoline, then relative price stability is the most likely scenario,” said Trilby Lundberg, editor of the Lundberg survey of 8,000 gas stations.
Such stability has not been the norm in California gas prices, especially this time of year. Since 1995, prices have spiked an average of 19 cents a gallon from February to May, according to the California Energy Commission.
This year, prices rose sharply in February and March because of increased crude oil costs sparked by international events. They have dropped gradually since early April. On average, a gallon of gasoline costs $1.55 in California, down 40 cents from the same time last year.
Several Southern California motorists interviewed last week said they just roll with the price spikes.
“That’s part of the price you pay for living here; everybody drives a car, and you have to have gas,” said Mary Lorge, a Cal State Fullerton student.
Filling her car at a Fountain Valley Chevron station, where gas cost 8 cents a gallon more than at a nearby Arco station, she said she no longer price-shops. “I found that if I went for the cheaper gas, my car made funny noises and didn’t run as well.”
As Roger Meyer filled up his sky-blue 1969 Dodge Dart in Ventura, the theater director from Moorpark said, “I do comparison shopping in every other area of life. But I rarely shop around [for gas].... In the general scheme of my life, gas prices are a pretty low priority.”
Finding a good price, however, is important to April Cathaway, a nurse and single mother of four from Newbury Park. She frequently drives 13 miles to Simi Valley in search of savings.
“If I know I can get a good deal, I’ll drive out of town,” she said as she filled up her Buick sedan.
Marshall Goldman, 65, a salesman who lives in Irvine and drives about 20,000 miles a year in his work, traveled 10 miles farther up the San Diego Freeway on his way to Simi Valley before pulling off to fill up at an Arco station on Brookhurst Street. He pays close attention, he said, to gas prices as he makes his calls, and finds that the Arco stations in Fountain Valley and Garden Grove have some of the lowest prices.
Goldman said the price of gas affects the way he lives and works. “I cut back on driving if it gets too nuts, and do as much as I can by telephone. And I make my calls in person only when there’s the chance of a big sale.”
Bruce Nichols, 40, pulled into the same Arco station to fill up the family Suburban for a weekend getaway with his wife and two children. Nichols said he has to pay attention to gas prices because his SUV gets only about 15 miles per gallon. “I actually drove down here because the gas was 2 cents cheaper” than at another Arco station closer to his Fountain Valley home.
One reason prices go up in spring is that refineries in California must switch from a winter-grade to summer-grade gasoline, which is less polluting but more expensive to produce. Any delay in the conversion can disrupt supplies and further increase prices at the pump, experts said.
“There is kind of a witches’ brew of problems that can happen at this time,” said Jay McKeeman, executive vice president of the California Independent Oil Marketers Assn., which represents wholesale fuel sellers.
Gasoline prices in California are generally more volatile than in other states because motorists here must consume a low-emissions blend produced almost exclusively by California refineries. When supplies for the unique blend are low, refineries in nearby states can’t come to the rescue.
Prices can also vary from city to city--in some cases, from neighborhood to neighborhood--by as much as 10 cents per gallon under a controversial oil industry practice known as “zone pricing.” Industry officials defend the practice as a marketing tactic that allows dealers to be competitive. They argue that prices are sensitive to land costs, taxes, labor, competition and other factors.
“It is more or less what the market will bear,” McKeeman said.
For example, he noted that gasoline prices are typically higher in San Francisco than in Los Angeles because of tighter zoning restrictions, higher land costs and other expenses.
But some activists and independent station owners charge that “zone pricing” is one of several tactics used by major oil companies to increase profits and drive small “mom and pop” stations out of business.
“It’s the major reason why consumers can’t get the cheapest price,” said Will Woods, executive director of the Automotive Trade Organizations of California, a trade group for independent service station owners.
Most industry experts said the supply and cost of crude oil is the biggest factor in gasoline prices. About a third of the oil used in California refineries comes from abroad.
Prices rose sharply this spring, when Iraq and Venezuela briefly cut crude oil supplies. Iraq suspended its supply to protest the Israeli-Palestinian conflict; a labor dispute and protests in Venezuela disrupted supplies there.
“The international oil scene is an important factor--and not predictable, as you know--in the price of crude,” Lundberg said.
John Felmy, chief economist for the American Petroleum Institute, agreed, pointing out that crude oil represents about 41% of the price of gasoline. “The fundamental reason for the volatility of gasoline is the price of crude,” he said.
Sometimes, psychological factors can play a role in prices. Shortly after the Sept. 11 terrorist attacks, gasoline prices spiked because of fears of an ensuing war and of oil supply shortages.
But oil industry experts said a sharp drop in airline travel since then has decreased demand for jet fuel, helping keep petroleum inventories high. That has helped keep prices stable.
Despite the short-term volatility in gasoline prices, oil industry officials said the long-term trend in gasoline prices--when adjusted for inflation--has been decidedly downward.
“Real gas costs, when adjusted for inflation, are lower than they were in 1981,” said Daniel Cummings, a spokesman for British Petroleum, the largest supplier of gasoline in California through Arco stations.
Although Californians now pay much more for gasoline than motorists in almost every other state, that disparity did not exist a decade ago, when the state had surplus refining capacity and was even able to export gasoline.
But as the number of California-registered vehicles grew in the 1990s from 25 million to 30 million, boosting demand, the relative refining capacity declined to the point where the slightest disruption in supply creates instant and widely felt shortages, and soaring prices as well.
Even when supplies are bountiful, California prices on average range 10 cents to 20 cents a gallon higher than the average U.S. price, after adjusting for local taxes.
Investigations conducted by the California attorney general’s office and the U.S. Senate’s Permanent Subcommittee on Investigations concluded that was due in part to the lack of real industry competition in the state, where four petroleum refiners control roughly 80% of the gasoline production, and there are practically no independent gasoline outlets.
California prices have driven some motorists to consider making dramatic changes in their driving habits.
Ollin Martinez, a television cameraman from Pasadena, said he routinely shops around for the lowest price but now he is considering trading in his BMW M3 for a hybrid electric car. “It’s killing me,” he said as he filled his sports car with gas in Pasadena. “I’m pumping $30 a week, and I don’t even drive my car on weekends.”
Times staff writers Cara Mia DiMassa, Anica Butler and Gariot Louima contributed to this report.
