The relentless slide in oil prices, which hit 12-year lows Tuesday, is having only mixed results in helping California drivers save at the gas pump, analysts said.
Gasoline prices in the state have fallen from peaks reached last July. But because of California’s unique gasoline market, the state’s prices remain about 10% higher than a year ago despite the sizable drop in oil prices in that span.
Oil prices fell yet again Tuesday, with the top grade of light crude oil for near-term delivery dropping 97 cents, or 3%, to close at $30.44 a barrel on the New York Mercantile Exchange, its lowest level since December 2003. Prices briefly dipped below $30 during the session.
Two years ago, oil was approaching $100 a barrel. But since then, global oil production has far outpaced demand and, more recently, China’s economic problems and the strengthening U.S. dollar have put added pressure on prices.
Markets are concerned that the slowdown in China’s economy, the world’s second largest, will suppress oil demand even more. And because oil is priced in dollars, the stronger American currency is making oil more expensive to buyers holding other currencies.
The fallout from the drop in prices, especially for companies involved in exploring and producing oil, has continued to widen around the world.
Oil giant BP said Tuesday it planned to cut about 4,000 jobs in its exploration and production unit this year. The London-based company currently employs about 80,000.
“We need to do more in order to be more competitive and recognize the increasingly challenging business environment,” BP spokesman Jason Ryan said in an email.
BP’s decision lifted the overall number of job cuts among the world’s publicly traded oil and gas companies to about 250,000 in the last 18 months, said John Graves, president of Graves & Co., an industry consulting firm in Houston.
“That number is highly conservative because the majority of oil and gas companies are private, and private companies aren’t going to make public announcements,” he said.
“This is a significant downward change in the fortunes of the oil and gas industry, no question about it,” Graves said.
There also is speculation that oil’s price drop could lead to additional bankruptcies among oil companies, especially small- to mid-sized firms.
Companies that already have filed for bankruptcy include at least two with operations in California: Raam Global Energy Co. and Sefton Resources Inc., according to the law firm Haynes and Boone.
At the pump, the average price of regular gasoline in California on Tuesday was $2.847 a gallon, according to the Auto Club. That’s down from $3.72 in mid-July — when some stations sold gas for $4 a gallon or more — but 10% higher than $2.595 a gallon a year earlier.
The national average currently is $1.956 a gallon, the Auto Club said.
“As 2016 begins, California is the only gasoline market in the United States now experiencing increasing prices and higher prices than at the same time last year,” the U.S. Energy Information Administration said in a report last week.
Why? The key reason is that California requires a special blend of gasoline, and there have been production problems with some refineries in the state, most notably the extended cutback at the Exxon Mobil Corp. refinery in Torrance after an explosion last February.
That’s resulted “in falling gasoline stock levels and the need to import gasoline from distant sources that require higher prices and longer transit times,” the EIA said.
Prices are even higher in Los Angeles and Orange counties, where the average is about $3.02 a gallon, said Auto Club spokeswoman Marie Montgomery.
“Right now, Southern California is the most expensive place in the country, including Hawaii, to get gas,” she said.
Californians could see lower pump prices during the rest of January because of the drop in oil prices and seasonal low demand for gasoline, said Tom Kloza, global head of energy analysis for the independent Oil Price Information Service.
But in February, refiners begin switching to the summer blend of gasoline that California requires and that will temporarily reduce production and probably send prices higher, Kloza said.
“In the next few weeks, you’ll probably see the lowest prices you’ll see for many months,” he said. “You’ll be going back up between Valentine’s Day and Cinco de Mayo.”
Kloza added that any price hikes could be mitigated once the Exxon Mobil refinery is back on line, which is expected sometime from February to April.
Meanwhile, some OPEC nations reportedly are mulling whether to hold an emergency meeting of the 13-nation Organization of the Petroleum Exporting Countries to weigh changes in production to stem the drop in oil prices.
But analysts at Morgan Stanley & Co. wrote in a report Monday that what’s driving much of oil’s recent declines is not so much overproduction but the strong U.S. dollar.
If the dollar keeps rising against other currencies, they wrote, “$20-$25 oil price scenarios are possible.”
Times staff writer Samantha Masunaga contributed to this report.