Freefall continues for Los Angeles crude oil prices; industry source predicts prices will keep going down.

Freefall continues for Los Angeles crude oil prices

Industry source predicts prices will keep going down

Prices posted for crude oil produced in Los Angeles County slipped again, this month by 40 to 50 cents a barrel, and still lower prices are forecast. The news is a bad omen for thousands of investors here with equity stakes in local wells.

Those crude price cuts followed reductions of 70 cents to 95 cents a barrel late last month, which resumed the long slide that began early this year. Los Angeles-area posted prices had a brief upturn of 25 cents to 90 cents a barrel a month ago after suffering from nine consecutive price cuts totaling up to $5.75 a barrel since Feb. 22, but now the trend is down again.

Despite the virtual freefall of local crude prices, though, retail gasoline prices have continued rising steadily. A mid-Wilshire Arco station, for example, was charging $1.039 a gallon last week for unleaded regular, up from $1.019 a month earlier and 89.9 cents last February when the crude price fall began.

Crude prices will "continue to drift down," predicted Will J. Price, the president of San Francisco-based Chevron U.S.A. Inc. Price was in Los Angeles last week to announce a reformulated premium unleaded gasoline and a reformulated diesel fuel.

Although the new Chevron Supreme Unleaded gasoline costs 2 cents a gallon more to make because of the cost of a new additive purchased from another company, Price said gasoline prices could drift down, too. (Chevron's El Segundo refinery, which produces the new fuels, is building a new unit that will be operating in October to manufacture the additive -- methyl t-butyl ether -- that reduces carbon monoxide emissions, he said.)

Crude prices took a brief upturn a month ago upon reports the 13-member Organization of Petroleum Exporting Countries would reduce the excess production that has been flooding world markets. But when the expected OPEC production cuts failed to materialize and crude inventories continued rising, posted prices were cut by major companies that buy local crude.

Indeed, West Coast crude stocks rose to a towering 86.82 million barrels, according to last week's report by the American Petroleum Institute, up from 85.04 million barrels the prior week and 83.56 million a year ago. That increase was despite skidding West Coast crude production, which sank to 2.34 million barrels daily, API said last week, from 2.77 million barrels daily the prior week and 2.99 million a year ago.

Mounting crude stocks here are at least partially a function, too, of refinery shutdowns for repairs and turnarounds, Chevron's Price indicated.

Reflecting this, West Coast refinery utilization slipped to 82.5 percent, according to API's figures last week, from 83.4 percent the prior week and 90.0 percent a year ago. That helped reduce West Coast gasoline stocks to slightly less than 28 million barrels, API reported last week, from 29.19 million the prior week and 29.91 million a year earlier.

Nonetheless, the latest gasoline stocks still are high for this time of year, suggested Charles E. (Ed) Malmgreen, assistant vice president of the 700-member California Independent Petroleum Association. The gasoline market still "hasn't taken off yet" for this time of year, he said, and industry people now are "talking about a dime-a-gallon reduction" in gasoline prices here.

That could soften crude prices further, Malmgreen lamented. Moreover, he added, the gloomy crude outlook here could be made even grimmer if, as some industry sources fear, West Coast refiners start buying a lot of tanker crude.

In citing examples of the latest round of cuts in posted prices for local crude, Malmgreen said Mobil Corp. pared 50 cents a barrel to $11.20 for 17-degree-gravity crude from the Wilmington field. Mobil trimmed 50 cents also from its posted price, he said, to $12.70 for 26-gravity crude from the Long Beach/Signal Hill field.

(The higher the gravity is, the lighter or thinner the crude. When refined, lighter crudes produce more "top-of-the-barrel" products, such as gasoline and jet fuel. Heavier crudes with lower gravity numbers contain more "bottom-of-the-barrel" products, such as heavy fuel oil and bunker fuel oil for ships. A barrel contains 42 gallons.)