Pump Prices Sting -- and Could Get Worse
It didn’t take long for Mohammad Helwani to feel the recent surge in gasoline prices. Every time pump prices rose, he heard about it from the employees at his messenger service. Immediately.
“They drive for a living,” said Helwani, president of M.H. Courier & Notary Service, a Santa Fe Springs firm that supplements its small fleet with employees using their own cars. To offset those workers’ higher out-of-pocket gas bills, Helwani said, “I had to raise their commission.”
Florist Hank Maarse is also watching the run-up, hoping it won’t wilt his profit.
“When there were spikes last year, we tried to offset it a little bit with higher delivery charges,” said Maarse, general manager of Jacob Maarse Florists, the Pasadena shop named for his father that makes as many as 120 deliveries a day. “If the same thing happens this year, we’ll probably have to do the same thing.”
With California gasoline prices in quick ascent, the outlook isn’t too good for florists, messenger services, taxis or any business with a fleet of cars or trucks. The bad news -- unless you own a California refinery -- is that retail prices are poised to rise still higher in the coming days.
The statewide average price of self-serve regular has been climbing steadily, rising 27.3 cents this year to $1.868 a gallon Monday, according to the Energy Department. A sharp surge in wholesale gasoline prices this week, however, has led some to predict the statewide average could soon surpass the record of $2.145 set last March.
This week, stunned wholesale buyers watched as the spot price for gasoline in Los Angeles soared nearly 30 cents to $1.62 on Friday morning, before it eased to $1.52 later in the day. An increase in wholesale spot prices, reflecting traders’ bids for a slim supply of unspoken-for barrels of gasoline, is typically a precursor to higher prices at the pump.
“This thing has been moving like a three-stage rocket,” said Tom Kloza, chief oil analyst at Oil Price Information Service, a firm that tracks fuel trading. “You’re looking at [pump] prices of $2.10 or $2.20 just if retail catches up to wholesale.”
Pessimists, he noted, are predicting wholesale prices as high as $1.70 a gallon, which would translate into pump prices of $2.25 to $2.50 a gallon once taxes, transportation costs and the dealer’s margin are added.
It’s not entirely clear that the higher prices are warranted, market watchers said.
California’s gasoline supply is chronically tight and greatly dependent on imports to feed all the fuel tanks, but past price surges have typically been set off by an added difficulty, such as a pipeline or refinery disruption, or a sudden jump in the cost of crude oil, the raw ingredient used to make gasoline.
The oil industry has long maintained that changes in retail gasoline prices are determined by the demand of consumers and the output of competing suppliers.
This time, with oil prices already high, it seems the jump was triggered by anxious gasoline traders acting on news and rumors involving refineries around the state.
“We appear to be in one of those market spikes which is largely an overreaction,” Kloza said. “In the last six days, there has been more buzz about this or that refinery problem in San Francisco or Los Angeles than there has been in a while, and that’s brought a lot of worries.”
There are some genuine blips in gasoline production, including the delayed restart of a unit at Valero Energy Corp.’s Wilmington refinery, and apparent mechanical problems at BP’s Carson plant. Traders have also been spooked by rumors of troubles at other refineries.
Among California refinery owners, only Valero has publicly confirmed a glitch at one of its two refineries here, leaving traders to speculate wildly about production levels at the other 11 gasoline-producing plants in the state. Those rumors easily take hold this time of year, because refineries throughout the state are conducting planned maintenance and preparing to switch from California’s wintertime fuel formula to a harder-to-make summer blend designed to cut pollution in higher temperatures.
Those worries, and the resulting surge in wholesale prices, are yielding hefty profits for refiners, which even in normal times enjoy higher margins than anywhere else in the country.
According to Oil Price, the fuel price tracking firm, California refiners are pocketing about 70 cents for each gallon of gasoline they sell -- after subtracting the cost of crude oil, their single largest expense. Kloza called the situation “very extreme,” noting that the gross margin earned by the state’s refiners is typically around 25 cents a gallon.
The trickle-down effect for Helwani’s messenger business and Maarse’s flower shop will arrive with the monthly fuel bill.
“I haven’t seen this month’s bill yet,” Helwani said, “but I’m pretty sure I’m going to be very surprised.”
