March fever at the pumps
Why are gas prices surging this early in the year?

By David Washburn
STAFF WRITER

San Diego Union-Tribune March 13, 2007 (see also commentary by UCAN Advocates, 3/9/07)

Talk about March madness.

San Diego drivers have become somewhat resigned to paying more than $3 for a gallon of gas during peak spring and summer driving months. Not in early March though, not with more than a week of winter left.

But the numbers at the pump don't lie. And yesterday they read $3.10 for a gallon of regular, on average, in San Diego County - a record for March, according to the locally based Utility Consumers Action Network, or UCAN.

"Typically we see a jump in April," said Charles Langley, who oversees gasoline monitoring for UCAN. "This year we are getting jumped at the pump in March, and that is scary."

Gas prices in San Diego this week are 48 cents higher than they were this time last year, an 18 percent increase. And while pump prices here are always about 20 cents above the national average, they are 50 cents higher this week.

One can even find cheaper gas in Hawaii, where it's an average $2.90 a gallon.

"I'm from Bellingham, Wash. - we can afford our gas," quipped 60-year-old visitor Sue Gonzales, who was filling up at a Chevron station on H Street in Chula Vista.

So why is this happening? And does this mean pump prices this year will eclipse the record of $3.43 per gallon set last May?

Good questions, say market watchers. Their answers: "A lot of reasons" and "We don't know."

Analysts are loath to predict what will happen with one of the world's most volatile commodities. The general sense is that prices won't go higher until the summer driving season begins around Memorial Day - but don't hold them to it.

"I don't think we will see $2.50 a gallon anytime before October," said Bob van der Valk, a Portland, Ore.-based fuel broker. "It might go down in April, then a lull, and then all hell will break loose."

Part of the price jump was expected.

There is always a slight bump this time of year as the refineries switch from the winter gasoline blend to the summer blend, which produces fewer pollution-causing emissions. Producers have to slow production a bit while they make the switch, and it takes slightly more oil to produce the summer blend than it does the winter mix.

And refineries usually schedule routine maintainance on their plants this time of year so they are ready to go when the peak driving season hits.

But they didn't expect the confluence of a surge in demand nationwide due to unseasonably warm January temperatures in many areas, unscheduled problems at key refineries and a February jump in crude oil prices.

Langley and others said unscheduled repairs at the Shell plant in Martinez, a small fire at a Chevron refinery in El Segundo and a recent power outage in Los Angeles affecting several refineries have affected already tight supplies.

"There is so little slack in the system," said Doug MacIntyre, an oil industry analyst for the federal Energy Information Administration. "Everything has to be running smoothly for it to work."

Said van der Valk: "It's just been Murphy's law; one more thing we didn't need."

In the past, imports from other parts of the world have helped keep the price from spiking. Not this time, say analysts. A tight European market and a refinery fire in Nigeria mean imports will be slow in coming, especially to California, which requires a special, lower-emission blend.

"There are a lot of things consumer groups say, but this market behaves like any market would behave given the same set of circumstances," said Tupper Hull, spokesman for the Western States Petroleum Association, a trade group for refiners.

The shock that area drivers experienced when prices first hit $3 in September 2005 seems to have been replaced by a sort of complacent cynicism.

Several folks filling up in south San Diego County yesterday said they weren't buying the tight supplies rationale.

"It's a game," said Rene Mariota, who spends about $1,000 each month gassing up the five vehicles that he, his wife and two kids drive.

"They jack it up to $3.25, and we think $3 is a good deal. . . . I don't like it, but what am I going to do?"

UCAN's Langley isn't ready to allege a conspiracy, but he is quick to point out that seven refining operations control more than 90 percent of gasoline production in California. And he hopes price hikes like this week's will cause people to demand reform.

"What we have in California is a malarial gasoline economy," Langley said. "It's fever, followed by chill, followed by even worse fever. The cure is true competition, and until we get that we will suffer."

David Washburn: (619) 542-4582; david.washburn@uniontrib.com