State Sees Sharp Fall in Gas Price

Many California motorists are buying gasoline for less than $2 a gallon, though rising crude oil costs could slow or reverse the recent downward trend in pump prices.

The average price of a gallon fell 3.3% in California in the week ended Monday. It was the sharpest drop yet in five straight weeks of declines, according to federal figures, with the average for regular $2.009 statewide and $1.986 in Los Angeles.

The descent in California outpaced the decline nationwide, where prices fell 1.3% to $1.574 for regular, according to the Department of Energy.

Industry experts said the lower pump prices reflected the sharp falloff in crude oil costs in March as traders reacted to a rebound in worldwide oil production and favorable news about the war in Iraq.

On Monday, however, crude was up 32 cents to $30.87 a barrel on the New York Mercantile Exchange on fears the Organization of the Petroleum Exporting Countries may decide at a meeting this week to cut back on output.

Consumer advocates say gas prices remain too high in California. Charles Langley of the nonprofit Utility Consumers Action Network in San Diego said retail prices should have long ago slipped below $2 a gallon because crude prices have dropped substantially from their peak Nymex close of $37.83 on March 12.

“I think we should have seen this big of a drop around April 3, and we didn’t because the market is so incredibly dysfunctional and there’s no competition,” said Langley, who manages UCAN’s gas project.

He noted that retail prices remain well above year-ago levels, when the statewide average was $1.613, nearly 40 cents cheaper than today’s average, according to the Energy Department.

Jeff Wilson, a spokesman for the Western States Petroleum Assn., said gasoline prices reflect many market conditions, including supplies and competition.

“The market is working and gas prices are falling as stability returns to the marketplace,” he said. “There are some folks who would like to see the price drop faster -- but the market is the market and nobody controls the market.”

A state energy department official noted that last week’s drop in retail prices coincided with cost cutting by California refineries, several of which slashed what they charge dealers by up to 12 cents a gallon.

The price cuts came after state officials said the state’s refineries -- not gas stations -- appeared to be gaining the most from the recent price spike.

An April 11 letter from Sen. Dianne Feinstein (D-Calif.) to the chief executives of several oil firms underscored the point by noting that oil prices started falling in late February and expressing the “sincere hope that lower crude oil prices will soon be passed on to families and businesses in California.”

For weeks, dealers at Shell, Mobil, Arco, Chevron and other branded outlets had been buying gasoline from refineries at prices substantially higher than those paid by independent owners, who can get gas at wholesale rates, according to Rob Schlichting, spokesman for the state Energy Commission.

Branded dealers are required to purchase their gasoline from the stock sold by the refineries themselves at what is called the “dealer tank-wagon price.”

During the first week of April, for example, the wholesale price of regular gas available to independent dealers was from $1.35 to $1.40 in Los Angeles. Figures compiled by the state Energy Commission show that dealers of branded gasoline were paying substantially more.

Arco dealers, for example, were paying $1.50 a gallon, while 76 dealers were paying $1.56 a gallon.

At that same time, the average retail price in Los Angeles -- including about 50 cents a gallon in taxes -- was $2.112.

Energy Commission officials then started asking oil companies about their tank-wagon prices, and dealers began reporting large price cuts from the refineries: Shell was down 12 cents overnight, 76 posted an 11-cent drop, and several others followed suit, Schlichting noted.

Wilson declined to speculate on the reasons for the price cutting.