2:00 a.m. February 12, 2009

San Diegans are seeing gasoline prices rise even as oil prices dip because
refiners are producing less fuel for a variety of reasons, experts say.

This is happening even though the faltering economy is holding down demand.

First, refinery production shifts from the cheaper winter blend to more
expensive summer gas this time of year.

Also, refineries have been down for extended maintenance periods. Not only is
this a good time for refiners to catch up on maintenance, but until recently,
making gas was a money-losing proposition.

Plus, a bankruptcy has indefinitely idled an old refinery in Bakersfield that
produced a small but important share of the state's gasoline.

San Diego prices averaged $2.24 a gallon for regular unleaded yesterday,
according to the Auto Club of Southern California, 30 cents more than the
national average of $1.94.

Gas prices nationally also have been rising – 15 cents in the past month –
although more slowly than in California, where state law mandates
cleaner-burning fuel.

“We largely produce our own supply,” said Marie Montgomery, a spokeswoman for
the Auto Club.

The state's refiners produced 6.5 percent less gasoline last week than a year
earlier, and stockpiles are 24.3 percent less than a year ago, the California
Energy Commission reported yesterday.

Local prices probably will top $2.50 before summer, market insiders said.

Prices have been rising steadily, about a penny a day, since bottoming out at
$1.71 a gallon in mid-December, said Charles Langley, fuel price analyst for
UCAN, the Utility Consumers' Action Network.

“I wouldn't be surprised to see $3 a gallon sometime this summer,” Langley
said.

For consumers, the best short-term strategy is to keep their tank filled up –
they'll spend more for gas tomorrow than they will today, he said. Long-term, it
will be cheaper to buy a more fuel-efficient car.

That's true even if oil prices stay between $35 to $45 a barrel, where
they've been hovering for the past couple of months after falling from their
peak of $147 last summer.

Light sweet crude for March delivery settled at $35.94 a barrel on the New
York Mercantile Exchange yesterday, down $1.61 for the day.

Demand for oil is down worldwide.

Some companies are taking oil deliveries now, filling super tankers, and then
parking them offshore for delivery in coming months, with the companies' profits
coming from futures prices that are now trading at a 20 percent premium, said
Brian Milne, refined fuels editor for Omaha-based DTN, which produces trade
newsletters.

“There's just so much crude oil around,” Milne said.

But California drivers won't share by way of lower gas prices.

Late last year, when the recession became official, refiners reacted by
cutting the amount of crude they process.

“What this has done is reduce the amount of gasoline supply both nationally
as well as in California,” Milne said. “That has halted the slide in gasoline
prices. Gasoline has been moving higher since.”

Big refiners have cut production to raise prices, Bob van der Valk, fuel
pricing expert at 4Refuel, a Canadian company that delivers fuel to big fleets.

“They've got their foot on the hose,” van der Valk said.

Add to that the switch to summer gas – designed to fight smog – which is
affecting supply in two ways. Refineries stop producing while they retool, and
when they start back up, they get less summer-blend gasoline out from every
barrel of oil than winter-blend.

“Production goes down 10 percent,” van der Valk said.

Then there's the shutdown of an old Shell refinery in Bakersfield owned by
Flying J, a bankrupt Utah company.

The facility, known as Big West, can produce 2 percent of the state's
gasoline and 6 percent of its diesel – enough that state officials persuaded
Shell to sell it rather than shut it down in 2005 because of worries about its
impact on gas prices.

It's unclear whether the refinery will resume production.

Onell Soto: (619) 293-1280; onell.soto @ uniontrib.com