California gas prices likely to remain high

Posted on Wed, Apr. 02, 2003 By Gary Richards Mercury News

California motorists can expect wild hikes in gas prices for years to come -- and the state says it's not because big oil is gouging us.

Motorists in the state are consuming 3 percent more gas every year, and that added demand is outstripping the 1 percent increase that California refineries can realistically be expected to produce annually, said William Keese, chairman of the California Energy Commission.

The state issued a report today stating the record run-up in pump prices is due to market conditions and not the manipulation of the major oil producers. The report indicated that prices will likely fall below $2 a gallon statewide soon, mainly because crude oil prices continue to ease.

But the long-term prognosis, hinted Keese, is not promising.

Drivers in the state burned up more than 14.2 billion gallons of gas last year, the result of an increase in sales of gas-guzzling sports utility vehicles, longer commutes and a growing population.

Increasing that demand just 3 percent means an extra 420 million gallons is consumed annually, an increase likely to lead to more wild spikes at the corner gas station.

You're going to need a steady flow of imports or $2 a gallon gas is going to be annual event out there,'' said Mark Mahoney, who tracks fuel prices on the West Coast for Oil Price Information Service. Because you pretty much can forget about building new refineries.''

To offset the state's growing dependence on oil, the Energy Commission is expected to recommend the creation of a reserve supply of gas that can be tapped when inventories drop.

Clearly, conserving gasoline is not only important for saving money,'' said Jennifer Mack of the state auto club. It's going to be very important for reducing overall demand in the future. . . . But we also have to learn ways to reduce fuel consumption now.''

The state is considering attempts to reduce the growing consumption by hiking gas taxes and fees and offering rebates and incentives for hybrid cars, which partly operate on electricity. The proposals will be presented to the state Legislature and Gov. Gray Davis in June.

The latest study said the current spike was due to several factors -- the doubling of crude oil prices because of uncertainty about war in the Middle East and production interruptions in Nigeria and Venezuela.

However, Keese added, the change from MTBE to ethanol has had little impact on the current prices. He said about 80 percent of the gas being sold in the state was now free of MTBE.

Self-serve unleaded gas was selling for $2.16 a gallon statewide today, down two cents from the record high of $2.18 set on March 22. San Francisco again had the most expensive prices in California at $2.26 a gallon, while San Jose's average stood at $2.15.

Wholesale prices have dropped about 42 cents per gallon since March 15, but retail prices are falling at a much slower pace -- just a couple of pennies.

But by next Monday they should fall significantly,'' Keese said. We expect prices under $2 in most parts of California by the end of this week. If they are not, we'll be concerned.''

Crude oil fell to $28.50 a barrel today, on expectations the war in Iraq would soon end. That's down 28 percent from a 12-year high of $39.99 a barrel in February.

In addition, U.S. crude-oil imports were the highest recorded by the Energy Department since it began compiling weekly figures in 1990.