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California prices will rise more Original Source Link: (May no longer be active)
http://www.dailynews.com/Stories/0,1413,200~20954~2054746,00.htmlhttp://www.dailynews.com/Stories/0,1413,200~20954~2054746,00.html
State suffers pump pains
Cartel agrees to cut production of crude
By Evan Pondel
Staff Writer
OPEC's decision Wednesday to cut oil production by 4 percent likely will drive gasoline prices in California up by as much as 8 cents a gallon within a week, pushing the cost of fueling cars to record levels.
Experts said the action by the Organization of Petroleum Exporting Countries in Vienna, Austria, would further squeeze already tight supply levels in California and drive up prices if all the nations carry out the cut.
The average price of regular in Los Angeles had inched lower to $2.131, according to the Automobile Club of Southern California. But the reprieve could be short-lived as a change in oil-output levels abroad and continued supply woes domestically could send gasoline prices past the March 4 record of $2.20 a gallon.
"It's too early to tell. But one of the major factors in the increase of gasoline prices has been higher crude-oil costs," said David Fogarty, spokesman for the Western States Petroleum Association in Torrance.
Crude oil dictates about 50 percent of the price of gasoline and inventories are already well below average in California. That coupled with a dwindling supply of gasoline is reigniting worries about another uptick in prices.
"Supply levels are really sensitive in California right now and prices on the wholesale market are already moving higher," said Denton Cinquegrana, markets editor at the Oil Price Information Service in Lakewood, N.J.
Refinery glitches and seasonal factors pushed wholesale prices up in February, a trend that eventually reached the retail market. However, the wholesale prices soon leveled off and began falling by as much as 30 cents in March.
Not so after OPEC implemented a expected cut in production levels.
Wholesaler Bob van der Valk, manager of bulk supply for Santa Fe Springs-based Cosby Oil, said he is already seeing the price of gasoline rise. The price of wholesale gasoline rose 7 cents Wednesday, mostly related to a supply shortage. Such movement is usually an indication of what consumers will soon see at the pump.
"If anything, OPEC's move puts an immediate stop to the deterioration of gasoline prices," he said. "And I wouldn't be surprised if we saw a two-cent jump at the pump by Friday."
Despite OPEC's decision, some industry watchers are not convinced that countries will cut their output levels. Many of the top-producing countries depend on oil as a major revenue driver for their respective economies. For that reason, a country that is already enjoying the benefits of heightened demand might not be as willing to follow OPEC's lead.
"OPEC decided this a long time ago and for many countries this becomes a wink-wink, nod-nod sort of thing," said Jeff Spring, spokesman for the Auto Club.
Since OPEC announced the change in output levels several months ago, it is also likely that the cut has "already been built into the price today," Spring said.
Even so, if any state is in jeopardy of being affected by OPEC's move it's California. The state's dependency on specially formulated gasoline constantly challenges supply levels throughout the year. Conversely, demand for gasoline and oil hasn't been as great in other parts of the country because of a decline in heating demands.
"In a nutshell, we're not sure what will follow after OPEC's decision. But there is still strong economic growth in China and we're still waiting to see how the overall political situation is going to play out," said John Felmy, chief economist at the American Petroleum Institute in Washington, D.C.
Evan Pondel, (818) 713-3662 evan.pondel@dailynews.com
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