Pump Pain: Gas Passes $3 On West Coast

Will Rest Of Country Follow? It's Not Oil Prices, It's Demand, Refining Problems

(CBS/AP)  Gasoline prices have jumped above $3 a gallon in some parts of California and Hawaii and may hit that level in other parts of the country when the busy summer driving season approaches.

The summer spike in gas prices usually starts on Memorial Day, but with spreing still more than a week away, the price at the pump already is up nationwide more than 32 cents a gallon in just the last month, reports CBS News Early Show national correspondent Hattie Kauffman — 10 cents to $2.51 per gallon in the past week, according to the American Automobile Association.

The culprit is people driving more at the same time refineries are producing less.

"We have seen continued strong demand for gasoline currently running a little better than 3 percent than the same period last year," said analyst Bill O'Grady.

Analysts say drivers should brace for more increases in the coming weeks. Crude oil, which makes up about half the price of gasoline, is trading above $60 a barrel. Higher demand, refinery maintenance and fears about springtime shortages are also driving up prices, particularly on the West Coast.

"In this country, we really live on the edge in terms of gasoline demand and the ability to produce sufficient quantities at times," Fimat USA energy analyst and senior vice president John Kilduff said on CBS News' The Early Show.

Oil prices were flat Friday in advance of U.S. jobs data that could provide evidence of growth prospects for the world's biggest economy.

The nation's unemployment rate dipped to 4.5 percent in February even as big losses of construction and factory jobs restrained overall payroll growth. Wages grew briskly.

Also, traders will be watching for news from a meeting next week in Vienna, Austria, of the Organization of Petroleum Exporting Countries, or OPEC.

But right now there's no shortage of crude oil.

"There's enough production that OPEC has had to cut back a bit in order to prop up prices. In January, we had a brief interlude of crude oil prices below $50 a barrel. They have climbed back to over $60," Kilduff said.

"I think (the prices are) ridiculous, because I don't understand why the gas is going up at the pumps and the crude oil is going down," said motorist Charles Harper.

The bottleneck is in refining the oil into gasoline.

"This time of year, refiners go into a maintenance period where they rejigger their refineries to be able to emphasize gasoline production. What's happened, though, is we've been caught flat-footed. Several refineries, almost a refinery a day, has had some problem of some magnitude," Kilduff told co-anchor Harry Smith. "One refinery is completely off-line and other problems have cropped up to pinch supplies at the moment. We're only running at 58 percent of capacity at the moment."

If the refineries can get back up to speed, "we could actually see prices fall during the summer," Kilduff said. If not, "we are looking at least 20 cents to 30 cents higher at the pump in the coming weeks."

Prices in Hawaii and California are already over $3 a gallon.

Wailuku, on the Hawaiian island of Maui, currently has the highest average price for a gallon of regular unleaded in the U.S., at about $3.20.

The average price for regular in San Francisco has hit $3.12, reports Chris Filippi of KCBS-AM (audio). That's up 34 cents in the past month, and is the highest price on the U.S. mainland.

"Taking the situation in the Middle East, I think it's just going escalate. I wouldn't be surprised to see $5," one San Francisco motorist told Filippi.

"I think probably $4.50 before everybody will start screaming really bad," said another.

The California cities of Santa Barbara, San Luis Obispo and Oakland are also all above $3 a gallon. Most other areas of the state are just a few cents away from cracking that milestone, and motorists say they're cutting back to save money.

"It kills me," said Gloria Nunez, 53, as she filled her Ford Explorer SUV at a San Jose gas station. Nunez, a clerk for a communications company, has started working a couple hours of overtime each week to help soften the blow.

"All of a sudden you kind of have to watch your pennies," she said.

"I take the bus," said Hector Esqueda, an 18-year-old justice administration student from Los Angeles who has stopped driving his gas-guzzling, older-model Lincoln Continental to save money. "Other people are doing the same thing. The bus is packed."

"The West Coast will certainly be the wild, wild West this year," said Tom Kloza, chief oil analyst for the Oil Price Information Service. Extensive maintenance work at West Coast refineries has curtailed supplies and exacerbated the typical "preseason rally" spurred by jitters about tight supplies.

"In the rest of the country it's just petro-noia. They're worried that they won't have enough gasoline," Kloza said. "But on the West Coast, the concern might be warranted."

However, analysts said it's unlikely other parts of the country would see $3 gasoline before summer without a major disruption in supply.

The nation's retailers had a slow start to the spring season as unseasonably cold weather in February chilled demand for lightweight apparel and left merchants with disappointing sales, and some of that might also be attributed to gas prices.

Shoppers are "seeing those gas prices go up, they're spending more filling up their gas tank, and that's money they don't have to spend over at the shopping mall," David Wyss, chief economist for Standard & Poor's, told CBS News.

Average fuel prices are still below their historical highs — most of which were set in 2006 — but are inching higher weeks earlier than usual.

[xfredmenzies]

BULL *** it is "rising demand and refining problems". They trot out this same lie every single year. THEY SHUT DOWN REFINERIES FOR NO REASON then claim refining problems, meanwhile SHELL records RECORD PROFITS.

Hey Katie Couric, how much money do the oil companies pay you to post this *** on the CBS News site?

[fizzal-2009]

Wow California 3.25 a gallon for gas, but ya can,t beat the price for that sunshine your getting, smile and be happy.

[mikekleber]

I am an engineer running an automated production plant. We take our plant down in the middle of July since that makes the most economic sense. Most people take summer vacations then. We are also shut down right after Christmas for a week. Why would refineries take their plants down just before the peak demand period ??? Because it's just another way the oil industries gives it to Americans. Just remember to put some vaselind in your car's glove box. You're going to need it every time you pull into a gas station. The sad part is, Bush and Cheney enjoy seeing Americans sodomized. Time for a change in Washington.

[tucson23]

It's time to regulate commodities which are essential to the economic health of this country. How many billions in profits are enough for these oil barons? They're purposely colluding to raise prices by reducing refining and refining capacity...some call that "price fixing."

[cdnunn]

This article is wrong. The highest price is not $3.20/gallon. Right now, this minute, the cheapest gas station in my hometown, Santa Maria, California, is selling at $3.25/gallon. The mainstream media never gets this right.

[simpsonman19]

It's time's like this that I love not owning a car and walking to work and using public transportation. Though that really only works in the city, it's the people in the suburbs who are getting screwed.

[draugwolf]

keep buying those SUV's american morons...dont complain and whine about the dry drunk draft dodger prez that you voted for twice in large enough numbers...

[olebd]

We should all keep a jar of Vaseline in the glove compartment. That way we'll be prepared each time we have to fill up.




Posted by ObservantX at 12:24 PM : Mar 09, 2007


Be sure to buy some now while you can afford it. It's petroleum based too :)

[observantx]

here we go again.

We should all keep a jar of Vaseline in the glove compartment. That way we'll be prepared each time we have to fill up.

[olebd]

A week ago the excuse was because of the weather in the Northeast. ***???

Isn't it strange how there were never really any issues with gas supply and demand (aside from the oil embargo in the 70's) before Bush and co. took over? Every frickin' day now, it's a new excuse.