Could Price of Gas Be Lower?
Retail gasoline prices in California dropped Monday for the fifth straight week, but experts said wholesale prices indicated that motorists should be paying even less at the pump.
The gap between wholesale and retail has been larger than normal since mid-October, when the price of gasoline being traded on the spot market in Los Angeles began to slide faster than prices at service stations in the city.
“You really have not seen it filter down to the retail level,” said Tom Kloza, chief oil analyst for the Oil Price Information Service, a trade publication that conducts its own price surveys.
In California, the average price for a gallon of self-serve regular fell 4.8 cents in the last week to $2.263, having sunk almost 14 cents since hitting a record high of $2.402 on Oct. 18, according to the Energy Information Administration, an arm of the Energy Department. Nationwide, self-serve regular eased 2.1 cents to $1.948 a gallon, the EIA said Monday.
Some experts said Californians should be paying closer to $2 a gallon -- even taking into account the wavering cost of crude oil and the intricacies of the state’s troubled fuel market.
Gasoline is thinly traded in Los Angeles and San Francisco on unregulated spot markets, making spot prices prone to big swings. Still, spot trades are solid indicators for retail prices because they have effects on what independent suppliers pay for fuel as well as on what refiners charge their branded dealers.
In Los Angeles on Monday, traders paid about $1.36 a gallon for gasoline that meets California’s strict air quality standards, according to figures from OPIS, the pricing service. After adding 60 cents for taxes and fuel transportation, the local break-even cost of regular would be $1.96 per gallon.
Monday’s EIA survey showed average Los Angeles retail prices at $2.284, more than 32 cents above break-even levels. Typically, retail experts said, gas stations pocket 4 cents to 10 cents of profit per gallon, with the rest going to refiners.
Comparing citywide average pump prices to OPIS figures for gasoline trades, the gap between break-even and retail prices started at near zero early in October but quickly jumped to more than 20 cents per gallon, and has ranged from 30 cents to more than 44 cents a gallon for the last three weeks.
A more normal margin would be about 10 cents, according to David Hackett, president of the Irvine-based consulting firm Stillwater Associates. But he added: “This is kind of how it works. Prices zoom up and they float down.”
Joe Sparano, president of the oil industry trade group Western States Petroleum Assn., acknowledged that people may look askance at the difference between retail and wholesale prices. “But that doesn’t necessarily mean that there is something going on,” he said. “The retail market has been coming off, and crude prices have been dropping ... but wholesale markets tend to, and often do reflect what the traders think, and that can influence the spread that you’re looking at.”
Even so, Kloza said, “I would think consumers’ patience would be running thin about now ... this is a pretty big disconnect.”
Bob van der Valk, bulk fuels manager for Cosby Oil Co. in Santa Fe Springs, said stubbornly high retail prices meant high profits at the refineries. “They’re taking every penny they can.”
He noted that gas prices could dip in Los Angeles because of a pipeline leak Monday that halted deliveries from Southern California to Las Vegas. If the pipeline isn’t fixed quickly, fuel could back up, he said, pushing down the cost of gasoline in the region.
