The Osmonds had a hit years ago called “Yo Yo.” Some motorists in Los Angeles County will probably recall that song when they pass by their friendly gas station and see the price-per-gallon rise and fall under the control of “big oil.” In March, residents were celebrating a two-week decline in prices after a wild, one-month spike that saw the retail price approach $3.80 per gallon. And although today’s prices are reportedly about 98.2 cents lower than they were one year ago, prices have gone up considerably in just the past week.
This week the average price of a gallon of self-serve regular gasoline in the county had risen for the 15th consecutive day, following a second period (41 days) of decreasing prices. It’s now about $3.56.3 per gallon on average in L.A. County, jumping as much as 43.3 cents over the previous two weeks. Motorists are paying approximately 32 cents more than a week ago, and 30.7 cents more than one month ago.
The Weekly Fuel Prices Report, issued by the Automobile Club of Southern California, for April 23 revealed that the retail state average is $3.194 per gallon for regular gas, representing an increase of 10.4 cents in one week.
Fires, strikes equal price spikes
The recent increases are said to be the result of reduced supply caused by a production lapse at Chevron’s Richmond refinery in Northern California. The refinery had a brief “flare-up” or explosion two weeks ago which has rippled throughout the state. Motorists in L.A. County have become familiar with these refinery “blowouts” as evidenced by an earlier price spike that resulted from an explosion in February at the ExxonMobile refinery in Torrance. At that time, the local supply of gasoline was being reduced because of the yearly process of converting to production of summer blends. With the Richmond shutdown, a strike taking place at Tesoro’s refinery in Martinez, Calif., coupled with rising prices for crude oil, motorists once again are at the mercy of the gas pump just as the traditional summer driving period is about to begin.
The Richmond flare-up and other mishaps affecting the state’s petroleum industry is reportedly not the sole reason why prices have jumped precipitously. Apparently, during the past few weeks, Los Angeles refineries have been shipping gasoline to Northern California to assist with reduced capacity there. Jeffery Spring, corporate communications manager with the Automobile Club of Southern
California, said that in today’s still rocky economic climate, any delay in petroleum production will result in almost immediate price hikes.
“The recent Chevron incident will likely put additional pressure on local pump prices, creating the second local gas price spike of 2015,” Spring said. He added that the recent 5.9-cent increase in Los Angeles is the largest since a 7.7-cent hike in late February.
Cost per barrel keeps rising
None of this is particularly good news for residents of the Antelope Valley. Many continue to commute into Los Angeles daily for employment or business purposes, and the price increases can place an extra burden on already tight household budgets. Oil industry experts say the price of goods and services delivered by truck—whether diesel or gasoline powered—are traditionally affected whenever the refining process is interrupted and especially when the price of foreign crude oil tends to increase. According to the Brent Index, the price of a barrel of oil is now trading at $65.08 which is about $15 higher today than at the beginning of the year.
In speaking to the Brent index, Tomas Varga, a commodities analyst with Barclays, said this week that the last time that net long positions (a scale used by large stock investors when purchasing futures and options) hit such an unusual high was in August 2013 when the Brent crude oil price rose to $114 per barrel, versus current levels of about $65. “Basically, the current price level simply does not confirm money manager’s enthusiasm,” Varga said. He added that demand needs to improve and that supply needs to be reduced, “if oil prices are to stabilize.”
The latest Lundberg survey, a weekly oil industry report, puts the average price of a gallon of regular gas at $2.58 nationwide, and $3.23 in California. Of course, the nation’s most expensive gas price is in Los Angeles County ($3.30 says Lundberg) while regular unleaded is selling somewhere between $2.95 to $3.19 in Tuolumne County (in the Sierra Nevadas) and at about $3.09 to $3.29 in Calaveras County. Closer to home in Orange County, the average price per gallon of gas has reportedly jumped 6.1 cents ($3.31 on Monday), representing a seven-day increase of $17.8 cents.
Morning, evening prices different
What happened in Torrance this year actually stunned a gas station owner. Frank Scotto, a former mayor of Torrance who owns a Chevron and a Mobile station, said the oil companies essentially “forced” him to pass along a 24-cent overnight increase. He said it was the largest one-day increase that he’d seen since he began tracking pump prices 48 years ago. The refinery explosion occurred on Feb. 18 and before the fire was fully extinguished, county gas prices had risen by 10 cents in less than 8 hours.
“I’ve been doing this for a long trime and the whole thing is a shock to me,” Scotto said. “I’m very disappointed the price has changed so dramatically. I don’t think there’s enough evidence stemming from the blowout to justify this increase.”
Tupper Hull, a spokesperson for the Western States Petroleum Association, explained the dramatic price hikes in relation to the annual switch from winter blends to summer blends that must be completed by mid April for “quality reasons.” Also, he explained, price volatility is accentuated in California because the state is “geographically isolated” from the rest of the nation and additional crude oil supplies must be brought in by ship rather than via pipelines.
“When (fuel wholesalers) are concerned or anxious about supplies tomorrow they tend to bid up the cost of available supplies today,” Hull explained. “It’s entirely possible what we’re seeing today is a delayed reaction to events at some point in the past.” Hull used the analogy of a baker who “… needs to change his bread today in order to have the money necessary to buy flour tomorrow” in offering an explanation for the “overnight” price spikes. Basically, if the baker believes the price of flour is going to increase the next day, he/she must charge more for today’s bread. “That’s true in fuels, too,” Hull said.
In March, state Senate President Kevin de Leon (D-Los Angeles) convened a hearing that included members of the state Energy, Utilities and Communications Committee and the Senate Transportation Committee to see if they could develop better consumer protection measures against oil price volatility, the latter issue, he said, is primarily affected by market trends and supply disruptions.
“We want to make oversight a priority across a wide spectrum of issues that affect all Californians,” said Anthony Reyes, spokesperson for de Leon. “The price that consumers pay at the pump affects everyday life in California.”
L.A. County always pays more
The U.S. Energy Information Administration (EIA) announced last month that during the April-to-September summer driving season, regular gasoline retail prices nationwide are forecast to average $2.45 per gallon ($3.10 in California) compared with $3.52 (in California) last summer. Based on this calculation/forecast, the EIA report revealed that the average U.S. household is expected to spend about $70 less on gasoline in 2015, with motor fuel expenditures are reportedly on track to fall to their lowest level in 11 years.
Oil industry experts contend that California residents, particularly those in Los Angeles County, will probably always pay more for gasoline. There are more cars here, more roads, more congestion, more interstate trade, etc., that make driving an automobile almost a “love-hate” relationship. And it doesn’t take much to tip the balance. “The margin of error in California is very, very small,” said Allison Mac, a petroleum analyst with the website GasBuddy.com. “The increase we’re seeing should be temporary, but anytime there is a refinery issue, we can see prices go up as quickly as overnight.”
There are many reasons why oil prices continue to fluctuate, according to experts. Among them are global demand, an improving U.S. economy, geopolitics in the world’s oil-producing regions and so-called “super-investors” looking for a better return on their money. Hedge fund investors can sometimes pour huge sums of money into the stock market in long-term bets that oil and gasoline prices will continue to rise.
Tips to save money
For those of us who simply wish to keep at least half a tank of gas in our vehicle—without sacrificing many other living expenses—the Consumer Federation of America offers a few suggestions that may aid in delaying your next trip to the gas station:
• Check your air filter. A clean filter can improve mileage by as much as 10 percent.
• Align your tires. Poor tire alignment forces your engine to work harder. Align your tires and save up to 10 percent in gas.
• Get a tune up. A properly maintained engine can improve mileage by up to 4 percent.
• Inflate your tires properly. More than one-fourth of U.S. vehicles travel on improperly inflated tires. The average under-inflation of 7.5 pounds causes a loss of 2.8 percent in fuel efficiency.
• Check your gas cap. It is estimated that nearly 17 percent of vehicles on the road have broken or missing gas caps. Escaping fumes not only hurt fuel economy, but also contribute to smog.
• Slow down. For every five mph you reduce in speed, you can reduce fuel consumption by 7 percent.
• Drive more smoothly. Avoid “jack-rabbit” starts and stops. Such “herky-jerky” driving can add as much as one-third to your gasoline budget.
• Lay off the brakes. Riding with your foot on the brake pedal not only wears out brake pads/shoes, but it can increase gas consumption by as much as 35 percent.
• Lighten up. For every 100 extra pounds carried around, your vehicle can lose 1 to 2 percent in fuel efficiency.
• Don’t idle. Idling causes excess air pollution and wastes gas. While waiting for a freight train to pass or if you’re stuck in a freeway closure, turn off the engine.
