SACRAMENTO, Calif. - Gasoline closing in on a record $5 a gallon prompted Gov. Jerry Brown to direct California regulators to relax smog controls so oil refineries could increase supplies of cheaper fuel.
Regular gasoline in California has surged to an average $4.668 a gallon, an all-time high and 22 percent more than the U.S. average, according to data Monday from AAA, the nation’s largest motoring organization. Some stations were charging as much as $5.89 in the Big Sur area, according to GasBuddy.com.
The California Air Resources Board Sunday granted refineries permission to make an early shift to winter-blend gasoline, typically not sold until after Oct. 31. Due to the composition of the gasoline, refiners can produce more of the winter blend than the summer blend.
"It’s absolutely outrageous," said Tonnie Katz, 67, a retired newspaper editor who stopped at a Los Angeles gas station for a $69 fill-up. "I don’t think anyone understands it. For seniors, this is an awful big chunk out of our budgets."
California’s average price for regular has jumped 50 cents a gallon in the past week. That made it at least $1 a gallon higher than in a dozen other states: Alabama, Arkansas, Georgia, Louisiana, Missouri, Mississippi, New Mexico, Oklahoma, South Carolina, Tennessee, Texas and Virginia, according to data provided by AAA.
Sen. Dianne Feinstein, a Democrat from California, sent a letter to Jon Leibowitz, chairman of the Federal Trade Commission, Sunday asking for an immediate investigation into whether supply was being manipulated for profit.
"California commuters are facing the highest gas prices and the longest commutes in the country," Feinstein said in a statement. "Paying hundreds of dollars to fill your tank every time you go to the pump is untenable, particularly because it does not appear the price spike and supply disruption are in any way related to supply and demand."
California is dependent on its own refineries for gasoline because the state is mostly cut off from oil-products pipelines spanning the rest of the country. Refiners outside California are generally not equipped to supply the cleaner-burning gasoline required in the state.
Retail prices began to skyrocket after Exxon Mobil’s 150,000-barrel-a-day refinery in Torrance, near Los Angeles, reduced production Oct. 1 after a power failure. That followed a fire that knocked out a crude-processing unit at Chevron Corp.’s plant in Richmond, near San Francisco, in August and the shutdown of a Chevron pipeline that delivers crude to Northern California because of contamination.
"Gas prices in California have risen to their highest levels ever, with unacceptable cost impacts on consumers and small businesses," Brown said in a statement. "I am directing the Air Resources Board to immediately take whatever steps are necessary to allow an early transition to winter-blend gasoline."
The change may increase California’s fuel supply by 8 percent to 10 percent with only a "negligible" impact on air quality, Brown said.
Winter-grade gasoline is about 15 cents to 20 cents a gallon cheaper to blend and refiners can quickly and easily make the switch, Andy Lipow, president of Lipow Oil Associates in Houston, said day by phone.
"It’s an easy change to make," Lipow said. "I would expect you will get an immediate reaction at the pump."
The last time the air board granted such a variance was in the wake of Hurricane Katrina in 2005. It was not for a shift in seasonal fuels, but to allow for an adjustment in the blend to make the fuel available more quickly.
"This is probably going to continue to recur because California has just enough refining capacity to supply its demand, but only if everything is running well," said John R. Auers, senior vice president at Dallas-based Turner Mason & Co., which advises energy companies. The state’s refining industry "operates on a knife’s edge," he said.
While the waiver and restored production may ease supply, prices may not immediately fall as refineries hold onto gasoline and wait until the highest price to sell, said Bob van der Valk, an independent fuel pricing analyst in Terry, Mont.
"The majors have product," van der Valk said Oct. 5 by telephone. "But they’re not selling to fuel distributors, they’re not selling spot-market barrels, at any price."
Prices will start falling as refineries’ inventories pile up and they switch to winter-blend fuels, van der Valk said. Retail gasoline prices are not fixed to wholesale prices, so sellers can choose when to reflect a drop in their costs.
"The bottom line is we’re going to feel the squeeze for another 10 days," van der Valk said.
Doan reported from San Francisco. Contributors: Barbara Powell in Dallas and Joe Carroll in Chicago.
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