As California gasoline prices matched record highs Tuesday, oil
industry experts warned that the state's fuel market was short on
competition and supplies and possibly vulnerable to manipulation.
The assessment came amid an unusual off-season surge in the cost of
gasoline. The average gallon of self-serve regular climbed 12.9 cents
over the last week to $2.327 — tying the California record set at the
end of May. The average has moved up more than 23 cents in two weeks,
according to the Energy Information Administration.
"I don't
see any real end in sight for the next 30 days," said Will Woods,
executive director of Automotive Trade Organizations of California, a
Tustin-based trade group for independent service station owners.
The primary culprit, experts said, was the incredible rise in the cost
of a barrel of crude oil, which typically accounts for about half of
the cost of a gallon of gasoline.
Bolstered by ongoing concerns
about worldwide supplies, the price for November delivery of light
sweet crude briefly rose above $54 a barrel Tuesday, ending at $52.51,
down $1.13 from Monday's record close of $53.64 on the New York
Mercantile Exchange.
Traders are worried about possible
disruptions in oil-rich regions such as Iraq, Nigeria and Russia. They
also have taken note of ongoing problems in the Gulf of Mexico, where
producers have yet to recover from the ravaging winds and 60-foot waves
of Hurricane Ivan.
San Ramon, Calif.-based ChevronTexaco Corp.
said Tuesday that the hurricane flipped and crushed a platform that was
specially built to withstand a 500-year storm, defined as having
50-foot waves.
Oil prices alone don't account for all of the
sticker shock in California, where gasoline prices have soared more
steeply than in the rest of the nation.
The average gallon of
self-serve regular gasoline in the state now costs 33 cents more than
the national average of $1.993, according to government figures
released Tuesday and based on a survey taken Monday.
The U.S.
average increased 5.5 cents in the last week but is still below the
peak of $2.064 a gallon reached May 24. (Adjusted for inflation,
gasoline was more expensive in 1981 when the U.S. and California
averages hit about $3 a gallon.)
On Tuesday, some experts cited
another factor for California's expensive fuel: the power of oil
companies to legally increase prices because the state's unique
cleaner-burning gasoline is produced by few refineries outside the
state.
"As much as supply and demand is basic economics, so is
market power," said Severin Borenstein, director of the University of
California Energy Institute, speaking at a workshop sponsored by the
California Energy Commission.
"And it is without question that
the production of some of these companies — pretty much all of the
major producers of California gasoline — affect price in this market,"
Borenstein, said.
The proof, he added, is that when even one
refinery goes down unexpectedly, gasoline prices in California jump. He
said the situation created an incentive to hold back production to
boost prices.
"These guys are out to make money. And that's
OK," Borenstein said. "But pretending that's not what they're doing is
not productive toward getting at treating the real issues."
Drew Laughlin, a Houston-based industry consultant, agreed: "The
conditions exist so that certain behaviors can take place and be
harmful to the general good — not by any deliberate scheming — but by
incentives and good trading" of oil and gasoline.
That notion
was met with vehement disagreement from Philip Verleger Jr., a senior
fellow at the Institute for International Economics.
Verleger,
whose opinion was backed by the oil industry's Western States Petroleum
Assn., argued that no companies in California hold sufficient market
share to force movements in the price of gasoline.
Instead,
California consumers are the victims of traditional market forces, he
said, including the worldwide tightening of crude oil stockpiles and
the difficulty of attracting imports to the state.