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) - An unprecedented spike in California gasoline prices showed signs of easing on Friday, with some supply-stricken service stations preparing to reopen and retail rates poised to ease after topping $5 a gallon in many places.

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

But even as Golden State motorists awoke Friday to another jump in prices, signs emerged that the worst of the run-up was over: ExxonMobil

said operations had resumed at a local refinery 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 Richard Galanti, Chief Financial Officer at Costco, which had been forced to shut about 14 its 40 Los Angeles-area stations. He said five of those were expected to reopen on Friday.

Even so, the sticker shock was still reverberating across the state and officials rushed to reassure consumers that California 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 a gallon.

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

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

The average retail price of gasoline in California rose 17 cents 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, a spokeswoman for the Auto Club of Southern California. "It always seems like just when you've seen everything and you can't be shocked anymore, you are shocked again."

The average price is just 12 cents below the highest recorded statewide price of $4.61, which was reached in June 2008.

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


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

halted sales to retailers that do not carry its brand name, according to market sources. Tesoro declined to discuss its wholesale operations.

That development emerged after a series of events conspired to strain supplies, causing gasoline inventories in the West Coast region to fall this week to their third-lowest level of the past two decades, on a seasonal basis, government data showed.

Earlier this summer, Chevron Corp's


California, refinery was shut down after a fire, while a Chevron pipeline that carries crude oil from the state's Central Valley to refineries in the San Francisco Bay area has been closed since mid-September.

More recently, Phillips 66

had shut two plants to conduct planned maintenance, and then a power outage at Exxon Mobil Corp's

Torrance, California refinery struck on Monday, disrupting operations for days.

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

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

Gasoline blended to meet California's strict environmental standards traded at 90 cents a gallon over the November RBOB contract on the New York Mercantile Exchange, down 55 cents from where it traded on Thursday. California gasoline was later offered at 85 cents over the NYMEX.

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

Valero Energy Corp

said on Friday it was still temporarily withdrawing from the Los Angeles spot refined products market to assure supplies to branded and unbranded retail stations.


State officials said California was not running out of gasoline.

"People may not find gas at a price that they like and there may 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 Energy Commission (CEC).

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

Gas stations in the country's most populous state can begin selling winter-blend gasoline, which more easily releases smog-causing substances, on Nov. 1. Until that date, only summer-blend gasoline, which is less likely to evaporate into smog-causing chemicals, can be sold.

ARB could also permit gasoline from neighboring states that does not meet California's strict emission standards. An ARB spokesman 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 climbed 19 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 in Los Angeles and Rory Carroll in San Francisco; editing by Leslie Gevirtz, Sofina Mirza-Reid, G Crosse)