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California gas prices stabilize, seen heading downward

Tuesday, 9 Oct 2012 | 9:21 PM ET

By Eric Kelsey

LOS ANGELES, Oct 9 (Reuters) - California's record-high gas prices held steady on Tuesday and were expected to begin dropping later in the week, but a rise in wholesale prices suggested the decline could be more moderate than market analysts had previously anticipated.

The average price of a gallon of regular gas in the state was up three-tenths of a cent on Tuesday to $4.671, which marked the lowest one-day increase since prices began to spike at the beginning of last week, said Marie Montgomery Nordhues, spokeswoman for the Automobile Club of Southern California.

Nevertheless, prices remained higher than $5 a gallon at many gas stations in the state.

"The consensus seems to be they're probably peaking and hopefully will be heading in the other direction real soon," Nordhues said.

Retail prices surged by more than 50 cents a gallon last week and wholesale prices rose by almost a dollar a gallon after a series of refinery mishaps pinched supplies. Trading market sources said a possible "short squeeze" that came about when a big refiner was forced to buy fuel on the spot market may also have been a factor.

The price spike ended after California Governor Jerry Brown on Sunday ordered that service stations be allowed to begin stocking cheaper and more plentiful "winter-blend" fuel three weeks ahead of schedule. Wholesale prices dropped by 60 cents a gallon Monday and analysts said a sharp fall in retail prices would follow within about a week barring further market disruptions.

The huge jump in gasoline prices has unnerved drivers in car-loving California and led to calls from California's two U.S. senators for a federal investigation of possible manipulation in the gasoline trading markets.

Richard Benes, an attendant at a 76 gas station in the coastal community of Marina del Rey, adjacent to Los Angeles, said he does not anticipate retail prices will fall soon.

"Prices just jumped ... but we can't expect them to go back down just as quickly," Benes said.

Sam Larkin, 43, a medical supply salesman filling up his minivan at an Arco station in West Los Angeles where the price of regular unleaded stood at $4.79, expressed skepticism the price spike is beginning to reverse itself. "I won't believe they're (prices) going down until I see it," he said.

WORST IN CALIFORNIA

The average price of a gallon of regular in Los Angeles-Long Beach metro area stood at $4.705 on Tuesday. Prices were even higher in San Luis Obispo in central California, which had the most expensive gas in the state at $4.75 a gallon on average, Nordhues said.

In a sign of improvement, the Southern California areas of Orange County, Riverside, San Bernardino and San Diego all saw prices fall slightly on Tuesday, Nordhues said.

But wholesale prices in the Los Angeles market rose by 26 cents a gallon Tuesday after Exxon Mobil Corp said in a regulatory filing that it would move ahead with planned work on its Torrance facility near Los Angeles for the remainder of the October.

A power failure at that plant contributed to last week's price surge.

Meanwhile Chevron said a key unit at its Richmond refinery, which suffered a major fire in August that also contributed to the supply squeeze, would remain shut through the end of the year -- the long end of its earlier estimates.

State Senator Juan Vargas, a Democrat representing areas near San Diego, on Tuesday joined calls for an investigation into gas prices, calling on the state to probe the issue.

Senator Dianne Feinstein on Sunday called for a Federal Trade Commission investigate gasoline trading markets and establish a new oversight regime. On Monday Senator Barbara Boxer asked the Department of Justice to investigate the issue.

(Additional reporting by Jonathan Leff and Erwin Seba; Writing by Alex Dobuzinskis; Editing by Jonathan Weber and Ed Davies)

((alex.dobuzinskis@thomsonreuters.com))

Keywords: CALIFORNIA GASOLINE/