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West Coast to Feel the Pain of High Gas Prices

Whatever Happens Elsewhere, Left Coasters to Pay More This Summer

By Mark Huffman
ConsumerAffairs.com

April 10, 2007
An oil industry analyst predicts that even if gasoline supplies and prices ease off in the rest of the nation this summer, the West won't be so lucky. Regular gasoline is at $3.285 a gallon in the region, according to AAA, less than 10 cents below last May's all-time record of $3.38.

Prices in California, driven upward by a shortage of refining capacity, remain more than 50 cents above the U.S. average, according to Tom Kloza, a founder and now publisher of the influential Oil Price Information Service.

"In the Rockies and east of the Rockies, there will be plenty of gasoline. ...At end of summer, [there will be] a bit of a demand rally but [it] won't be like the peaks of 2005, 2006," he said.

But Kloza added: "I have to caveat the West Coast. The West Coast is its own animal.

"The West Coast has much lower production at the moment than it had last year, and significantly higher demand. The thing that bailed out the West Coast from being a problem throughout last summer was the fact that people drove less when retail prices ... went to $3.40 in some states. You really don't know where that threshold where people will change behaviors is going to come this year," Kloza said.

"The West Coast is going to be the most compromised market, not just for the rest of this year but for the rest of the decade," Kloza said.

"Sweet Spot"

"Refiners in California are in such a sweet spot that no matter how little gasoline they refine, they'll make more money," said Foundation for Taxpayer and Consumer Rights Research Director Judy Dugan. "It's up to lawmakers and regulators to return some balance to the suffering consumers, who are once again paying $50 and up to fill their minivan tanks."

FTCR maintains that it is the refusal of large refiners, including Chevron, Exxon and Valero, to expand capacity that keeps prices half a dollar higher in California than in the rest of the nation. The widening gap between the price of crude oil and the price of gasoline, especially in California, has produced record refining profits.

"Oil companies built this system to keep supplies tight," said Dugan. "They know they will reap ever-higher overall profits without having to make or sell more gasoline. With only a handful of companies making most of the refined gasoline in California, they don't compete, they cooperate. The usual laws of supply and demand are broken."

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