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.

Silicon Valley Business Journal 9:56 AM PST Wednesday 

There are no evildoers skulking behind closed doors plotting to send California gasoline prices to record highs, the California Energy Commission says in a report released Wednesday.

Instead, the high prices are due to a confluence of demand, converting refineries to make summer-grade gasoline and crude oil price increases prior to the state of the Iraq conflict, the commission says.

"The Energy Commission has found no evidence that distribution problems or delays ... were intentionally planned to manipulate gasoline prices. An investigation by the Attorney General does not appear warranted at this time," the report says.

What primarily drove this year's increases to record-setting levels was the unusually high cost of crude oil on the world market, the CEC says. The price of crude oil nearly doubled in the past year due to market uncertainty about the threat of war in the Middle East, it notes.

Other factors included an oil strike in Venezuela that drastically cut supplies and a cold winter in the Eastern United States that increased the need for heating oil, it says.

"As long as demand for transportation fuels continues to grow, California's gasoline supply will be subject to price spikes," the report says. The statewide average retail price of regular gasoline jumped 36 percent, climbing from $1.58 a gallon on Jan. 1 to a record-setting $2.15 a gallon on March 17, an increase of 57 cents. The average on April 2 is $2.16, with San Francisco still boasting the nation's highest average at just over $2.26.

With Californians consuming nearly 1.1 billion gallons of gasoline each month, a 57-cent-per-gallon increase costs consumers more than $20 million per day.

At maximum production, in-state refineries make more than 44 million gallons of gasoline a day. But to meet demand, gasoline retailers import an estimated 100 million gallons of gasoline and blend stocks each month, according to the commission.

"Unanticipated production difficulties or distribution problems can tighten the market and drive up prices before additional supplies can arrive by ship from distant refineries, which can take three to six weeks," the commission's report says.

Daily Press Wednesday, April 2, 2003 By JAMES RAMAGE/Staff Writer

Though gasoline prices stabilizing statewide, local companies have had to make difficult decisions

VICTORVILLE — These days, Orlando Mellan's livelihood comes down to pizza and gasoline. For the cook and co-owner of Carpino's, a pizzeria on Bear Valley Road in Hesperia, the price of gas determines how late he stays open and how much he charges for remote deliveries. He's not alone. Local businesses across the High Desert have been dealing with escalating fuel costs by considering or taking painful measures to maximize, or simply earn, profits. For many, the end of high prices cannot come soon enough. "The gas is so expensive here," Mellan said, "The drivers don't want to work." Because his drivers must pay for their own gas, as well as try to make their money through small commissions and tips, their returns are smaller than ever, Mellan said. "Now I must schedule my hours when my drivers will work," he said. Also, Mellan has started charging customers for deliveries outside of Victorville and Hesperia. For instance, deliveries beyond the Mall of Victor Valley or Ranchero Road will cost an additional $2 or $3. There are positive signs though. According to the state Energy Commission, the average price of gasoline in California fell on Monday by 1.3 cents from the previous week. At Hesperia Chevron Gas, owner Sager Fakhoury said the price of gas one year ago was $1.39 a gallon for regular unleaded. Today the price is $2.19. Fakhoury acknowledged that he's marked down the price 10 cents a gallon to get more business, even though it has eaten into profits. If customers pay with ATM cards, where each payment costs his business 45 cents to process, his profits all but disappear. According to Rob Schlichting, spokesman for the state Energy Commission, shipping costs and federal environmental regulations for California — which require gasoline blends that reduce air pollution — account for the nation's cleanest, yet priciest, gasolines. A harsh winter across the country and uncertainty about events in oil-producing countries Iraq and Venezuela have only compounded the problem. Some businesses take comfort knowing that price hikes have affected everyone. "We're paying $2.25 a gallon today, which seems like twice what we were paying several months ago," said Lorraine Chilelli, manager of Victor Valley Florist in Victorville, of her delivery truck fuel costs on Monday. Chilelli's company has had to raise delivery costs in the Victor Valley by $1 a customer. "At least we know that all the other florists have raised their prices, too," she said. James Ramage can be reached at james_ramage@link.freedom.com or 951-6242.

NBCSandiego.com POSTED: 11:21 a.m. EST April 2, 2003 UPDATED: 11:21 a.m. EST April 2, 2003

State Will Continue To Monitor Natural Gas, Gasoline Markets

SACRAMENTO, Calif. -- Recent price spikes in gasoline and natural gas prices were not the result of market manipulation, two state agencies concluded in a report, but officials say they'll continue to watch California's prices closely

Gasoline and natural gas prices rose sharply in March, prompting Gov. Gray Davis to order the California Energy Commission and the California Public Utilities Commission to investigate.

Retail gasoline prices peaked mid-March at an average of $2.15 per gallon, said William Keese, chairman of the California Energy Commission. Even though wholesale prices have dropped about 42 cents per gallon since then, retail prices have only dropped an average of one cent, he said.

Prices should be under $2 at most pumps at the end of this week, and "if they are not, we'll be concerned," Keese said, adding that it's not uncommon for prices to rise more rapidly than they fall.

The spike in gasoline was due to several factors, including the doubling of crude oil prices because of uncertainty about war in the Middle East.

"The cost increases that we have seen from crude oil shouldn't reflect that high a price," Keese said.

Other factors included an oil strike in Venezuela last year that cut supplies, a cold winter in the eastern states increased demand for heating oil and delays in refinery maintenance in California.

Natural gas prices generally run higher in the winter when demand is greater, said PUC Commissioner Michael Peevey.

"We didn't find any manipulation in natural gas prices," Peevey said. "But (we did find) a repetition of a pattern we've seen in California before, where there's a sharp price spike due to conditions outside the state."

The cold weather conditions in the East also contributed to California's higher natural gas prices, officials said. When consumers there are willing to pay higher prices "that sucks the gas in that direction rapidly, and California ends up having to pay," Keese said.

The report doesn't recommend the attorney general investigate the price increases, saying "the Energy Commission has no evidence to claim that any refiners are exercising market power."

Davis said the state would continue to monitor natural gas and gasoline markets "to ensure that no energy companies pull Enron-like tricks to artificially drive up the price of energy."

Copyright 2003 by The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Reuters, 04.02.03, 10:54 AM ET

NEW YORK (Reuters) - U.S. crude oil stocks jumped by 2.5 percent last week as a rush of new supply from top world exporter Saudi Arabia pushed imports to the highest level on record, government figures showed on Wednesday.

Crude oil stocks ballooned 6.8 million barrels to 280.7 million in the week ended March 28, the Energy Information Administration said in its weekly supply report.

Stocks swelled as U.S. crude oil imports jumped to nearly 10.4 million barrels per day (bpd), the largest average on record, the EIA said.

"Crude oil imports from Saudi Arabia increased sharply, an apparent reflection of much higher production that began in February," the EIA said.

Crude oil imports have averaged 9.1 million bpd over the last four weeks, which is more than 400,000 bpd more than averaged over the sameperiod last year, the EIA said.

"The tidal wave of crude we've been waiting for has finally hit our shores," said Bill O'Grady, analyst with A.G. Edwards.

Imports have also recovered from big regional supplier Venezuela, which is recovering from a two-month workers' strike that crippled its oil industry.

"Imports from Venezuela last week seemed to average close to normal levels," the EIA said.

The increased stocks give more of a cushion against the loss of Iraq's 1.7 million bpd of crude exports since the first days of a two-week U.S-led invasion.

Nearly 40 percent of Nigeria's oil production has also been shut in due to ethnic violence there ahead of mid-April elections. Nigeria is one of the top six U.S. oil suppliers and its high-quality crude is good for making gasoline.

Oil prices were down $1.28 at $28.50 a barrel after the report, already driven down by military advances in the U.S-led war against Iraq.

Gasoline inventories rose by 1.7 million barrels to 200.7 million barrels last week, though remain below the low end of the normal range, the EIA said.

"We're hearing Venezuela exports of gasoline are finally restarting and that's something we'll be watching very closely," O'Grady said.

Venezuela's strike also cut into gasoline supplies, and refiners have been unable to step up gasoline production as much as normal as they worked to meet heating fuel demand during a cold northern winter.

Distillate fuel inventories, including heating oil, decreased by 1.6 million barrels last week, the EIA said.

Industry group the American Petroleum Institute, which issues a supply report at the same time, said that crude stocks rose by 9.0 million barrels, distillate stocks fell 3.3 million barrels and gasoline stocks rose 2.5 million barrels.