SANTA MONICA, Calif. -- An oil industry analyst predicts that even if gasoline supplies and prices ease off in the rest of the nation this summer, the West Coast will not be so lucky. Regular gasoline is at $3.285 a gallon according to AAA, less than 10 cents below last May's all-time record of $3.38.
Prices in California, driven upward by an artificial shortage of refining capacity, remain more than 50 cents above the U.S. average, said the Foundation for Taxpayer & Consumer Rights (FTCR).
In an interview with CSP, Tom Kloza [image-nocss] of the Oil Price Information Service reinforced that view, said FTCR. When asked what the supply picture would be for the rest of the year, Kloza said, In the Rockies and east of the Rockies, there will be plenty of gasoline. At end of summer, [there will be] a bit of a demand rally but [it] won't be like the peaks of 2005, 2006.
He added, I have to caveat the West Coast. The West Coast is its own animal. The West Coast has much lower production at the moment than it had last year, and significantly higher demand. The thing that bailed out the West Coast from being a problem throughout last summer was the fact that people drove less when retail prices...went to $3.40 in some states. You really don't know where that threshold where people will change behaviors is going to come this year. The West Coast going to be the most compromised market, not just for the rest of this year, but for the rest of the decade.
[Click here to view the full version of CSP TV's Oil Outlook: OPIS Founder & Publisher Tom Kloza discusses the state of the oil markets with CSP's Steve Holtz. Or click on the CSP TV Feature of the Week box in this issue of CSP Daily News.]
Refiners in California are in such a sweet spot that no matter how little gasoline they refine, they'll make more money, said FTCR Research Director Judy Dugan. It's up to lawmakers and regulators to return some balance to the suffering consumers, who are once again paying $50 and up to fill their minivan tanks.
It is the refusal of large refiners, including Chevron, Exxon and Valero, to expand capacity that keeps prices half a dollar higher in California than in the rest of the nation, according to the FTCR. The widening gap between the price of crude oil and the price of gasoline, especially in California, has produced record refining profits.
Oil companies built this system to keep supplies tight, said Dugan. They know they will reap ever-higher overall profits without having to make or sell more gasoline. With only a handful of companies making most of the refined gasoline in California, they don't compete, they cooperate. The usual laws of supply and demand are broken.
The FTCR called on California lawmakers to legislate regulation of refinery production and of gasoline supplies in storage, which would effectively smooth out price spikes. The group added that the long-term solution must include more use of renewables and less use of fossil fuels. But in the meantime, only regulatory action will force refiners to supply the state with sufficient gasoline to prevent even routine maintenance from pushing up the price at rate of nearly a dime a week.
The FTCR has launched a website, www.oilwatchdog.org, which includes sections covering each of the Big 5 oil companies and the industry overall, as well as investigative reports and other documents. It also invites confidential public tips and comments.
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