California drivers are reeling from days of sharp gasoline price increases that left the state within reach of its record high. Economists warn that a prolonged period of elevated gas costs could harm consumers as the holiday shopping season kicks in.
Analysts attributed the price surge to fuel traders’ emotional reaction after a series of refinery outages and other problems, including a Northern California refinery fire, a Southern California refinery blackout, pipeline contamination and other events. Some service stations were charging more than $5 a gallon and others stopped buying new supplies out of fear that if the market turned they’d lose money.
“I haven’t seen a series of incidents like this, and it has led to the worst panic-driven rise in gasoline prices that I have seen in 35 years,” said Tom Kloza, chief oil analyst for the Oil Price Information Service.
Prices are likely to set records over the weekend, analysts said, but they held out hope that the pain could end soon as fuel production problems subside.
Unhappy motorists said they were caught off guard.
“I went to the Costco station in Pacoima to buy gas on Thursday and was shocked to find it closed,” said Max Lang, 45, an engineer who lives in Stevenson Ranch. “I just don’t get why it’s happening.”
Gwen Grace, a 37-year-old homemaker, searched Friday for a price cheaper than the $4.39 a gallon that the USA gas station in Santa Monica was charging. Other nearby stations wanted as much as $5.39, so she bought $20 worth for her Prius and hoped it would last until prices begin to drop.
“It’s just depressing,” Grace said.
The average price of a gallon of regular gasoline Friday was $4.486, up a record 17.1 cents from the day before, according to AAA’s daily fuel price survey. That increase had followed an 8-cent rise from Wednesday to Thursday at a time when other parts of the country are watching prices decline.
“This is unprecedented,” said Marie Montgomery, a spokeswoman for the Automobile Club of Southern California. “We hope this is a record that will never be broken.”
California’s average price was 31.5 cents a gallon higher than the next most expensive state, Alaska, according to AAA, which tracks prices from more than 100,000 U.S. retail outlets using credit-card receipts from the day before.
California’s average gas price is getting close to the record high of $4.61, set in 2008; but that price is the equivalent of $4.93 in 2012 dollars, according to the Bureau of Labor Statistics’ inflation calculator.
One economist describes a kind of domino effect driving price increases. Fuel buyers, concerned that the state’s refinery problems would reduce supplies below adequate margins, overreacted even though gasoline supplies, as tracked by the California Energy Commission, are running just 2.5% below 2011 levels.
“Inventories may not be that low,” said Philip K. Verleger Jr., visiting fellow at the Peterson Institute for International Economics. “However, those owning supplies suddenly decide to keep them. Some might say hoard them. Buyers seeking gasoline supplies then bid up the price for the volumes that are available.”
Wholesale gasoline traded as high as a record $4.39 a gallon on Thursday. Add in about 65 cents in federal, state and local taxes and fees, and the implied retail price becomes $5.04 a gallon, not including any profit margin for the gas station owner.
Economists said that the effect on consumers would depend on how high prices go and how long they stay there.
“People are not going to change spending habits right away,” said Sung Won Sohn, an economist with Cal State Channel Islands in Camarillo. “But if [gas prices] remain where they are, people will cut back on spending elsewhere.”
Esmael Adibi, a Chapman University economist, said that if high prices last a few weeks “the negative impacts should be minor.”
“If it continues into the holiday shopping season,” he said, “it will definitely have a negative impact on discretionary spending.”
Analysts were split on how expensive gasoline was going to get.
Some noted the easing of wholesale prices Friday after Exxon Mobil Corp. said its Torrance refinery, which suffered a power outage Monday, had returned to operation.
Phil Flynn of the Price Futures Group in Chicago said he thought the state’s record would be broken but not by much. “Once the refineries get back to normal, prices should begin to drop soon,” he said.
Other analysts had grimmer predictions.
“Gasoline prices are going to skyrocket,” said Chris Faulkner, an energy expert and chief executive of Breitling Oil and Gas, a Dallas-based oil company.
“Service stations are shutting down, fearing that the market won’t bear the price they would have to charge and that they will have to sell at a loss,” he said. “In the next three days, if we don’t see relief, we could be looking at $5.70 gasoline and close to $6.”
Consumer advocates said that a lack of competition was to blame for high prices.
“When you’ve got such a small handful of owners controlling 14 refineries, it is inevitable that prices will go through the roof where there is friction in the delivery system,” said Jamie Court, president of Consumer Watchdog.
“There are too few oil companies controlling too few refineries and they want too much in profits.”