UPDATE 2-"Insane" surge in California gasoline prices starts to ease

(Adds consumer quote, Valero update, CEC spokeswoman comment,ARB comment)

By Braden Reddall and Nichola Groom

SAN FRANCISCO/LOS ANGELES, Oct 5 (Reuters) - Anunprecedented spike in California gasoline prices showed signsof easing on Friday, with some supply-stricken service stationspreparing to reopen and retail rates poised to ease aftertopping $5 a gallon in many places.

This week's abrupt price spike blindsided the state'scar-loving consumers and left some retailers in Los Angelesscrambling for supply, causing wholesale prices to surge anddriving up pump prices by an average of 36 cents a gallon.

But even as Golden State motorists awoke Friday to anotherjump in prices, signs emerged that the worst of the run-up wasover: ExxonMobil

said operations had resumed at a localrefinery that had been unexpectedly shut by a power outage;wholesale prices dropped 55 cents, and Costco Wholesale Corp

was preparing to reopen several stations.

"The situation is starting to improve already," said RichardGalanti, Chief Financial Officer at Costco, which had beenforced to shut about 14 its 40 Los Angeles-area stations. Hesaid five of those were expected to reopen on Friday.

Even so, the sticker shock was still reverberating acrossthe state and officials rushed to reassure consumers thatCalifornia was not running out of fuel.

At a gas station in the Brentwood section of Los Angeles,prices were up 41 cents from Thursday and well above $5 agallon.

"I'm absolutely shocked that gas here is $5.39," saidJennifer Wilson, an executive recruiter from San Diego whostopped to fuel her Toyota Corolla on her way to picking up herdaughter, a student at UCLA.

"We need at least a half tank to get back to San Diego. I'mdefinitely feeling the pain," she said.

The average retail price of gasoline in California rose 17cents to $4.486 a gallon early on Friday. The average price was$4.315 on Thursday and $4.131 a week ago, according to AAA data.

"We're in brand new territory," said Marie Montgomery, aspokeswoman for the Auto Club of Southern California. "It alwaysseems like just when you've seen everything and you can't beshocked anymore, you are shocked again."

The average price is just 12 cents below the highestrecorded statewide price of $4.61, which was reached in June2008.

"It's insane," said Matt Hurd, 35, as he filled up at a SanFrancisco gas station near the Bay Bridge. "Especially with thisthing," added Hurd, who works in real estate, motioning towardhis white SUV. "It's going to cost triple-digits to fill it up."


The first signs of a shortage emerged on Monday afterwestern U.S. refiner Tesoro Corp

halted sales toretailers that do not carry its brand name, according to marketsources. Tesoro declined to discuss its wholesale operations.

That development emerged after a series of events conspiredto strain supplies, causing gasoline inventories in the WestCoast region to fall this week to their third-lowest level ofthe past two decades, on a seasonal basis, government datashowed.

Earlier this summer, Chevron Corp's


California, refinery was shut down after a fire, while a Chevronpipeline that carries crude oil from the state's Central Valleyto refineries in the San Francisco Bay area has been closedsince mid-September.

More recently, Phillips 66

had shut two plants toconduct planned maintenance, and then a power outage at ExxonMobil Corp's

Torrance, California refinery struck onMonday, disrupting operations for days.

In addition, California refineries have already droppedproduction in anticipation of switching over to a seasonal"winter blend" of gasoline next month.

But on Friday, Exxon said the Torrance plant had resumedoperations, helping ease supply fears.

Gasoline blended to meet California's strict environmentalstandards traded at 90 cents a gallon over the November RBOBcontract on the New York Mercantile Exchange, down 55 cents fromwhere it traded on Thursday. California gasoline was lateroffered at 85 cents over the NYMEX.

"The squeeze is over, I guess," a trader said.

Valero Energy Corp

said on Friday it was stilltemporarily withdrawing from the Los Angeles spot refinedproducts market to assure supplies to branded and unbrandedretail stations.


State officials said California was not running out ofgasoline.

"People may not find gas at a price that they like and theremay be some stations where they used to get it that they can't,but our analysis says there is enough gasoline to meet demand,"said Alison Roberts, a spokeswoman with the California EnergyCommission (CEC).

On Thursday, the California Independent Oil MarketersAssociation, which represents wholesale and retail marketers ofgasoline, asked the California Air Resources Board, an airquality regulator, to allow early sale of winter-blend gasoline,the CEC said.

Gas stations in the country's most populous state can beginselling winter-blend gasoline, which more easily releasessmog-causing substances, on Nov. 1. Until that date, onlysummer-blend gasoline, which is less likely to evaporate intosmog-causing chemicals, can be sold.

ARB could also permit gasoline from neighboring states thatdoes not meet California's strict emission standards. An ARBspokesman said the board is evaluating the emergency request,but said there is no timetable for a decision.

In the Los Angeles area on Friday, the average price climbed19 cents to $4.539 from $4.347 a day earlier. In San Francisco,prices climbed 16 cents overnight to $4.596.

(Additional reporting by Erwin Seba in Houston, Dana Feldman inLos Angeles and Rory Carroll in San Francisco; editing by LeslieGevirtz, Sofina Mirza-Reid, G Crosse)