California gas prices stabilize, seen heading downward

By Eric Kelsey

LOS ANGELES, Oct 9 (Reuters) - California's record-high gasprices held steady on Tuesday and were expected to begindropping later in the week, but a rise in wholesale pricessuggested the decline could be more moderate than marketanalysts had previously anticipated.

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

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

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

Retail prices surged by more than 50 cents a gallon lastweek and wholesale prices rose by almost a dollar a gallon aftera series of refinery mishaps pinched supplies. Trading marketsources said a possible "short squeeze" that came about when abig refiner was forced to buy fuel on the spot market may alsohave been a factor.

The price spike ended after California Governor Jerry Brownon Sunday ordered that service stations be allowed to beginstocking cheaper and more plentiful "winter-blend" fuel threeweeks ahead of schedule. Wholesale prices dropped by 60 cents agallon Monday and analysts said a sharp fall in retail priceswould follow within about a week barring further marketdisruptions.

The huge jump in gasoline prices has unnerved drivers incar-loving California and led to calls from California's twoU.S. senators for a federal investigation of possiblemanipulation in the gasoline trading markets.

Richard Benes, an attendant at a 76 gas station in thecoastal 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 backdown just as quickly," Benes said.

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


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

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

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

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

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

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

Senator Dianne Feinstein on Sunday called for a FederalTrade Commission investigate gasoline trading markets andestablish a new oversight regime. On Monday Senator BarbaraBoxer asked the Department of Justice to investigate the issue.

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