Refiners limit on-hand gasoline inventory to boost profit, a consumer group’s report alleges.

The Los Angeles Times

Meager stockpiles of California’s cleaner-burning gasoline helped drive pump prices to record heights in recent weeks and are setting the stage for more of the same this summer, energy experts said Wednesday.

That point was underscored in a report by the Santa Monica-based Foundation for Taxpayer and Consumer Rights, which accused oil companies of squeezing on-hand inventories to boost profits at the expense of consumers across the West.

Many industry and government experts do not blame the oil companies, but they have grown increasingly worried that the United States — and California in particular — has too little fuel in reserve to keep small supply disruptions from causing price spikes at the pump.

Refiners in California recently have kept enough gasoline in storage to satisfy the state’s needs for 18 days, according to the consumer group’s analysis of Energy Department data. If fuel production faltered, it could take 11 to 40 days to bring in replacement supplies because no pipelines bring fuel from other refining centers, the report said.

Elsewhere in the country, fuel stockpiles typically cover 30 to 35 days’ worth of demand, according to a study by Stillwater Associates, an Irvine consulting firm.

“Are inventories here too low? Yes. Have inventories been too low in California for a long time? In my opinion, yes,” Stillwater President David Hackett said.

Joe Sparano, president of the Western States Petroleum Assn., dismissed assertions that oil companies do not keep enough fuel on hand.

“Why would anyone keep inventories higher than they need to be if they can operate smoothly and efficiently with what they have?” Sparano asked. “I don’t know that it leaves the state more vulnerable.”

In recent weeks, California retail gasoline prices have jumped beyond the increases seen elsewhere in the nation. The statewide average hit a record high May 18 of $3.379 for a gallon of self-serve regular, according to AAA‘s daily survey. California’s average eased Wednesday to $3.36 a gallon — but was 49 cents a gallon above the national average and about 88 cents higher than a year earlier.

Nationwide, the average gasoline price rose sharply in March and April to more than $2.90 a gallon, but did not reach the record $3.057 a gallon hit in September after refinery damage from hurricanes Katrina and Rita cut into fuel production. Experts blamed this spring’s increase on rising oil prices, higher-than-normal refinery maintenance and fears that a transition to ethanol-blended gasoline in parts of the country would trigger supply glitches.

But California Energy Commission officials have struggled to explain the statewide jump because the problems noted elsewhere in the country’s fuel distribution system aren’t applicable here. The agency is investigating the recent price run-up.

“A key area of analysis will be inventory and production levels,” Assistant Executive Director Claudia Chandler said. The report is expected to be released at the end of September, she said.

Gasoline production and stockpiles at California refineries typically peak just before Memorial Day weekend, the unofficial start of the summer driving season.

But the state’s most recent data indicate that supplies of California gasoline fell 3.7% during the week ended May 19 to a level more than 19% below year-earlier inventories. Gasoline production, meanwhile, fell 8.4% during the week to more than 12% below refinery output a year earlier, California Energy Commission statistics indicate.

“Production is actually lower than it’s been in the last five years for this time of year,” said Rob Schlichting, a commission spokesman. He attributed the shortfall to “some problems with a couple of refineries around the state, both north and south.” He declined to elaborate.

There was a fire at Exxon Mobil Corp.’s refinery in Torrance in February, but the company has not discussed the incident or whether it has affected fuel production. That refinery, one of the state’s largest, is still offline, according to Bloomberg News. The service also reported problems at Chevron Corp.’s Richmond plant in the Bay Area.

In an interview, Schlichting called the inventory levels “disappointing.” Later Wednesday, however, the commission in a news release characterized the state’s stockpiles as “adequate” for the summer.

But that assessment is disputed by Tim Hamilton, author of the study released Wednesday by the Foundation for Taxpayer and Consumer Rights.

“The West is running on empty entering the peak driving season,” said Hamilton, an industry consultant. “By maintaining too little supply, the oil companies have been able to charge Western states’ motorists outrageous prices for gasoline, far in excess of production and raw material costs.”

Lean inventories are a risk for California, said Tom Kloza, chief oil analyst for the Oil Price Information Service, which tracks fuel markets. When refinery glitches hit, Californians “are more prone to a tsunami-like impact,” he said.

Meanwhile, the per-gallon gross profit margin for California fuel producers — which was 30 cents to 40 cents at the start of 2006 — has exceeded $1 a gallon for three of the last four weeks, according to energy commission estimates. The margin is the price oil companies get for their gasoline and other products minus the cost of crude oil, a refiner’s largest and most volatile expense, as well as marketing and distribution costs and taxes.

Sparano of the oil trade group called Hamilton’s report a compilation of facts “that try to justify the same tired conspiracy theories that have been repeatedly discredited by reputable government agencies.”

The Federal Trade Commission this week issued a report that found no evidence
that oil companies manipulated supplies to increase prices.