Tonya Strickland

GAS PRICES HAVE NEVER BEEN THIS HIGH

By Tonya Strickland

tstrickland@thetribunenews.com

Jul 31, 2008

California’s average price for a gallon of gas has crashed through a longstanding peak set in 1981 ‹ another marker in the season’s recording-setting pain at the pump.

As of Monday, the average price for a gallon of regular unleaded was $4.60
in California, according to AAA. When adjusted for inflation, that beats the
previous peak set in March 1981, when the actual price was $1.90 per gallon
and the inflation-adjusted price was $4.53.

Drivers on the Central Coast are seeing even higher prices. The average
price for a gallon of regular unleaded in San Luis Obispo County, according
to AAA, was $4.65 on Monday‹57 cents higher than the national average and
among the most expensive retail gas costs in the country.

The Central Coast’s higher prices are the result of many factors, including
its remote location relative to the state’s oil refineries.

Then and now

A barrel of crude oil was about $135 Monday, down slightly from a recent
record high of almost $140, according to financial Web site
Market-Watch.com. The nation¹s energy research department, the Energy
Information Administration, said the current gasoline price peak ‹ like the
one in 1981‹has to do with supply and demand.

“In 1981, there was major turmoil in the market,”EIA information specialist
Paul Hesse said Friday, referring to the supply shortfall when Iran stopped
selling oil.

“Back then, demand was cruising right along. But when some of the supply got
knocked out, it sent crude oil prices up, up, up. So then, of course,
gasoline prices went up.”

Today’s market is also a reflection of dwindling supply, among other
factors‹but in a different way.

Worldwide consumption has increased, particularly in the last two years, as
economies in other countries continue to expand, Hesse said. Overseas
markets such as India and China are using more oil because their large
populations are now able to afford more goods that use the popular
commodity.

Other aspects guiding cost spikes include uncertainty in the political
climate of crude oil’s source regions, such as turmoil in the Middle East, a
limited number of refineries and investors bulking up the value as they put
their money into its worth, added economist Bill Watkins of the UCSB
Economic Forecast Project.

Gas in California

California’s gas prices are higher than other states¹ for many reasons,
according to the EIA. The main factor: California requires a cleaner blend
of gas than the federal government¹s mix regulations.

Also, California refineries need to run near full capacity to meet the
state’s gasoline demand. If more than one of the refineries that mix
California’s gas have operating problems at the same time, the state’s
supply may become tight and prices can soar.

Also, when supplies are obtained from foreign refineries, they can cost more
and take a relatively long time to arrive because of California’s
substantial distance from those sources.

This is also why San Luis Obispo County, located away from urban areas, can
have costly fuel: Shipping costs are part of the overall fee.

Looking ahead

Given all these factors, the market is fickle and forecasts are difficult,
Hesse said.

On June 11, the EIA forecast that gas will stay above $4 a gallon for
regular unleaded nationwide through next year.

“The current market conditions are very volatile and, based on our
short-term energy outlook, we can try to see where it’s going,” Hesse said.
“But it’s a forecast, not a crystal ball.”

If retail gas reaches $5 a gallon by the end of summer, another local
economist said, consumers will start making significant changes.

“It will take time,” said Dan Hamilton, also of the UCSB Economic Forecast
Project. “But people will start to sell their gas guzzlers and look for
other options.”

In San Luis Obispo County, bus ridership in March increased about 17
percent, or 115,215 people, over the same time last year, said Eliane
Guillot of the San Luis Obispo Council of Governments.

As well, Ride-On vanpooling has increased about 23 percent, or 77,931
people, in the same timeframe. Interest in cycling also has increased,
according to local bike coalitions and Rideshare groups.

Guillot expects May’s ridership to peak over previous months’ because of
rising gas prices, she said, though that report wasn’t available.

In some ways, cost increases could lead to positive adjustments, Watkins
said, such as new crude oil drilling, fresh or expanded refineries and more
alternative energies.

“High prices will spur development,” he said.

Katcho Achadjian, a San Luis Obispo County supervisor and 30-year local gas
station owner, predicted that $5 gas is around the corner.

When his three Arroyo Grande stations get suggested retail gas price updates
from the industry, the numbers shoot up 5 to 10 cents at a time, he said.
Not long ago, 2-cent updates were startling.

And as Achadjian witnessed drivers adjust to peak prices in 1981, he
believes the mental woes of today¹s fuel costs also will fade.

“I think this shock will pass,” he said. “And, one day we’ll look back on $4
gas prices and say, ‘Wow, that’s cheap.’ “