California gasoline prices set to plunge as spike ends

SAN FRANCISCO/HOUSTON Mon Oct 8, 2012 8:49pm EDT

1 of 10. Consumers purchase gasoline at a gas station as a plane approaches to land at the airport in San Diego, California October 8, 2012.

Credit: Reuters/Mike Blake

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SAN FRANCISCO/HOUSTON (Reuters) - The unprecedented price spike that added more than 50 cents a gallon to California pump prices last week ended as quickly as it began, market analysts said, and consumers should see prices fall dramatically in the coming week.

Political outrage, however, was still heating up as Senator Barbara Boxer joined calls for a federal investigation into possible market manipulation.

Prices started pulling back slightly on Monday afternoon, according to online filling station tracker Gas Buddy, after the American Automobile Association website reported they had hit a record of $4.668 per gallon on Monday morning.

California Governor Jerry Brown's decision on Sunday to allow an immediate switch to "winter-blend" fuel was a big factor in driving wholesale prices down by 60 cents a gallon on Monday, market participants said.

"Retail prices will come down as hard as they went up," said David Hackett, president of Stillwater Associates, an energy consultancy in Irvine, California. "It went up 56 cents in a week, it will come down that fast."

The price spike alarmed consumers and politicians across a state that is famous for its love of the automobile. Senator Barbara Boxer on Monday called for a Department of Justice investigation into possible price manipulation in gasoline trading markets. Senator Dianne Feinstein on Sunday made a similar request to the Federal Trade Commission.

Reuters reported on Friday that oil traders said the price spike had "many hallmarks of a classic short squeeze." Multiple trading sources said that refiner Tesoro Corp. was caught short of supplies and forced to scramble to buy fuel from other companies.

Spot market prices jumped by almost $1 a gallon in a matter of days, though trading sources said they saw no signs of collusion or deliberate withholding of supply.

Both Feinstein and Boxer cited the Reuters report of a possible short squeeze in calling for federal regulators to investigate. Boxer, in her letter to the Department of Justice, asked it to "immediately investigate whether any of these traders colluded to manipulate and drive up gas prices at the expense of Tesoro and California consumers".

BITTER MEMORIES

Californians have bitter memories of the supply shortages and price spikes that hit the electricity market more than a decade ago and were later found to have resulted from market manipulation led by the now-defunct Enron Corp.

Jason M. Jones, a music producer who was gassing up his Volvo in Santa Monica on Monday, said he was fearful of further price gyrations. "I feel they're taking advantage of the situation in Santa Monica," he said.

California gasoline prices are traditionally among the highest in the country. The state is largely cut off from national pipeline networks and refinery centers, and requires more expensive, cleaner-burning gasoline in the summer.

The recent price surge was initially set off by a series of refinery mishaps, including an August 6 fire at a big Chevron refinery in Richmond and an October 1 power outage at Exxon Mobil Corp's Torrance facility near Los Angeles.

The Torrance plant is now back online, helping to alleviate supply constraints. Brown's order to allow winter-blend gasoline to be sold immediately, well ahead of the normal October 31 transition date, was also a big factor in relieving supply concerns.

"I think prices will come down pretty quickly," said James Hamilton, an economics professor at the University of California, San Diego. "The measures Governor Brown adopted are exactly the right ones."

SLUGGISH PRICES BOTH WAYS

Hamilton acknowledged that some academic studies show it can take a "little bit longer" for prices to come down than it takes for them to go up. But he detected sluggishness in both directions, suggesting some Southern California retailers may have been wary of angering customers by increasing too fast.

"A few stations didn't raise prices as quickly as others, and that created shortages at those stations," he said.

Southern California bore the brunt of the supply disruptions last week and faced the highest prices in the state, with $5 per gallon spotted in some areas.

At one station in West Los Angeles, Rick Lee, a restaurant and club manager in his 40s, said he had not yet noticed a fall in prices. "For now I'm just putting in $40 at a time and not filling up my tank in anticipation that prices will go down or that someone will bail us out," he said.

(Reporting by Braden Reddall in San Francisco, Erwin Seba in Houston and Dana Feldman in Los Angeles. Editing by Jonathan Weber, Bernard Orr, Sofina Mirza-Reid, Jim Marshall and Joseph Radford)

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Comments (3)
gregbrew56 wrote:
I’ll bet dollars to donuts that the price of gas doesn’t go DOWN as quickly as it shot UP.

Nobody will take that bet. DANG!

Oct 08, 2012 9:05pm EDT  --  Report as abuse
tiktin wrote:
Of course government regulation and taxes had nothing to do with it. It was all the fault of those speculators, of these greedy oil companies, of market manipulators, whatever. But don’t worry, solar powered cars, wind powered cars, and hot air powered cars will solve everything.

Oct 08, 2012 9:26pm EDT  --  Report as abuse
gregbrew56 wrote:
Actually, my car IS solar powered! I’ve got a 10 year-old PV system on the roof of my home that has long since paid for itself in savings. So my transportation fuel (and domestic electrical needs) are absolutely free, and zero emission. Those that get their electricity from wind farms would also get the benefit of “wind powered cars” if they drive electric, as I have for 15+ years.

With the exception of “hot air”, your snarky final comment actually rings true. The future of personal transportation is electric. It’s inevitable.

Too bad we can’t harness that “hot air” from Washington, though. Seems like that’s all that is generated there, from BOTH sides of the aisle.

Oct 09, 2012 8:59am EDT  --  Report as abuse
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