Gas at $2 a gallon could burn drivers this summer By Dale Kasler Bee Staff Writer (Published March 7, 2000) Brace yourself for the $2 gallon of gas.

The federal government predicted Monday that gasoline prices, already at historic highs, will jump 25 cents to 30 cents a gallon this summer, despite projected increases in production by the OPEC oil cartel.

"World oil prices should remain high for most of the year as inventories are expected to remain low, even with an assumed increase in OPEC production of 1 million barrels per day," the U.S. Energy Department said. "Retail gasoline prices are poised to surge to unprecedented levels before the spring is out."

If the projections hold, prices could hit $2 a gallon for self-serve regular in some parts of Sacramento. A spot check Monday showed prices approaching $1.70 at many stations.

"You're going to see $2, easily," said Chris Mennis, a self-employed oil and gas trader in Santa Cruz.

Other experts disagreed. Prices are more likely to go up another 10 cents to 15 cents a gallon, said Severin Borenstein of the Energy Institute at the University of California, Berkeley.

In any event, predictions of additional price hikes brought cries of dismay from motorists gassing up at the Circle K/76 station on Alhambra Boulevard in midtown Sacramento -- where gas jumped 4 cents, to $1.70, in the middle of the afternoon.

"I have to drive; there's nothing I can do about it," said Mira Walker, who commutes from Lincoln to UC Davis Medical Center. "I'm just going to have to pay it."

The Energy Department said the U.S. average, $1.46 a gallon, would probably climb about 20 cents by the beginning of the summer driving season and then rise another 15 cents or so, to about $1.80, before summer is over.

The department, citing the peculiarities of the California market, also warned that price increases in the state could be "more pronounced than in the rest of the country."

In California, where taxes and other factors generate prices that usually exceed the U.S. average, just-released statewide numbers show gas already is averaging $1.63 a gallon, up 11 cents from a week ago, said the California Energy Commission. That's a penny higher than the all-time high of $1.62 recorded in April, when a series of refinery fires constricted supplies for much of the spring and summer.

Relief is coming, albeit slowly. At its meeting March 27, OPEC is expected to increase oil production by about 1.5 million barrels a day, a move that could ease a worldwide shortage that has driven prices to just more than $32 a barrel.

The cartel has little choice. "If they try to hold the line at $30 a barrel, what they'll get is a flood of non-OPEC oil . . . taking away their market share," said John Vautrain of the Purvin & Gertz energy consulting firm in Long Beach.

But OPEC's move almost certainly will come far too late to prevent a record run up in gas prices this summer, the Energy Department said.

The reason is that it will take weeks, if not months, to build U.S. oil and gasoline inventories back to their normal levels.

"They just don't turn a spigot right away," said Mennis, who buys and sells shipments of oil and gas from all over the world.

"It'll take them a month or two to increase production. (The oil) has got to go from the OPEC fields into tankers, then into the refineries," Mennis said.

Just shipping the oil from the Mideast, the heart of OPEC country, will take several more weeks, delaying the price relief.

Although California gets most of its crude oil from Alaska, the price of that oil tends to move roughly in tandem with OPEC prices, and it won't start falling until OPEC prices tumble, Borenstein said.

Contributing to the problem: U.S. inventories have been drawn down to alarmingly low levels. U.S. oil companies let their supplies dwindle when prices started moving up, believing that the prices represented temporary spikes, said chief economist Ted Gibson of the California Department of Finance.

"You don't want to stock up when prices are high," Gibson said.

Then came the unexpectedly cold blast of winter in February, which drove prices up for home heating oil in the Northeast, he said. So, at a time when refiners usually start cranking up more gasoline for the summer driving season, they were using their oil inventories to create more heating oil, he said.

"They were really blind-sided by the heating oil market," Gibson said.

As a result, gasoline supplies are about 15 percent below normal, according to the American Petroleum Institute.

Until those inventories are well on their way to being replenished, prices won't begin to fall, Gibson said.

Mennis said scattered refinery production problems in California were adding to the problem -- "minor, maintenance kind of issues," not the kind of major shutdowns that drove prices up last summer.

He said he believed prices already would be pushing the $2 mark in California, but the major oil companies are afraid of provoking politicians in Washington.

"They would be a target, a focus of political groups," he said. "They'd become a lightning rod."

Gibson said he didn't believe the higher gas prices would derail the booming California economy. With more fuel-efficient cars -- and higher personal incomes -- Californians aren't as dependent on less-expensive gas as they were in the 1970s, when oil shocks sent the economy into a tailspin.

"It's a lot less important," Gibson said.

Similarly, auto club officials said they don't believe the summer driving season will be diminished.

"We don't think it's going to cause people to stop taking long-distance driving vacations," said Geoff Sundstrom, spokesman for the American Automobile Association. "The economy is strong, and people have the money to go on vacation."

But in Sacramento, motorists at the midtown 76 station said higher prices were starting to put a dent in their wallets.

"It's changing my household budget; it's not changing my driving," said Ellen Ford, who commutes from South Natomas to Rancho Cordova. "I have to get to work regardless.

"After I pay bills, I barely have money to put gas in the car," she said.

Bee news services contributed to this story.

http://www.sacbee.com/ib/news/ib_news01_20000307.html

-- Martin Thompson (mthom1927@aol.com), March 07, 2000