RUMORS RESULT IN GASP PRICES.

Byline: Brent Hopkins Staff Writer

Buying gas? Get ready to gasp.

Pump prices are nearing the $2 mark for regular unleaded and experts said Friday that Southern California drivers could soon see record-breaking prices as high as $2.20 a gallon.

After a 30-cent run-up since the year began, drivers in Los Angeles are already paying an average of $1.953 for a gallon of regular, according to the Automobile Club of Southern California.

Many stations' prices are already above the much-ballyhooed $2 mark and they could stay well above that line for much of the year as scarce supplies of gasoline, low inventories and unwavering demand push them steadily upward.

Experts expect an increase between 15 cents and 40 cents in coming weeks, threatening the record of $2.167 set last March.

Rumors about refinery problems across the state have forced the wholesale market up 60 cents in recent weeks to near $1.60, according to the Oil Price Information Service, a climb that invariably drags pump prices upward soon thereafter.

Tom Kloza, chief oil analyst for the New Jersey-based market tracker, termed the fear of a gas shortage ``petro-noia.''

``This has been moving like a three-stage rocket,'' Kloza said in a conference call with reporters. ``If we stabilize or go higher, you'll see $2.10 to $2.20 (at the pump). This is built on fear and the expectation that there might not be enough gasoline to keep things running.''

He expects prices to stay high until mid-March, decline slightly for several months, then climb again in the peak summer driving season. The gasoline market will only get tighter then, as New York and Connecticut begin using a similar blend of gasoline and Shell shuts down a 70,000- barrel-per-day refinery in Bakersfield. Given California's already precarious gasoline supply chain, Kloza half-jokingly termed the situation as ``apocalypse, the second or third version.''

At his three San Fernando Valley-area gas stations, Jab Dhillon has already felt the pain. As the owner of an independent station, his wholesale prices have increased 28 cents in three days this week, cutting into his bottom line. With angry customers demanding an answer for the spike, he's reduced his own margin to keep retail prices as low as possible.

``This is ridiculous!'' he complained. ``Who's making money on this? Not me - I'm making a couple pennies a gallon, because you can't raise prices that much on the street.''

But dealers like Dhillon will soon have to start cranking up prices, according to wholesaler Bob van der Valk, bulk fuels manager for Cosby Oil in Santa Fe Springs.

According to his research, three refineries have either experienced maintenance problems or been off-line longer than planned for the switch to summer formulation gas. Though relatively minor problems, once they sap inventories and send prices up, their effects linger for months. He took the most drastic tone, predicting $2.35 a gallon at the pump by the end of next week.

``We're going to see $2 a gallon all the way through September,'' said van der Valk. ``That's better than $2.35, but it's going to be a whole lot more than the $1.60 we were paying.''

Valero Energy Corp.'s Wilmington refinery has been down for scheduled maintenance to its gasoline-making fluid catalytic cracking unit. A lubrication problem with some new equipment will keep it from operating at full capacity until early next week, according to Mary Rose Brown, Valero's senior vice president of corporate communications.

``It's a huge, 33-day project,'' Brown said. ``We're normally making 80,000 barrels a day. Now with the FCC unit down for scheduled maintenance, we're making about 25,000 a day.''

The production interruption, which affects each refiner, has drawn inventories down dramatically in the past three weeks, according to Doug MacIntyre, senior oil market analyst for the federal Energy Information Administration. Though in past years refiners could have simply produced more gas in other locations to take up the slack, he noted that most run at almost full tilt constantly just to keep up with national demand.

``We're at the point where even if you have one refinery with a relatively minor problem, you have price problems right away,'' MacIntyre said. ``Inventories are low, so the only way the market can get back in line is through price increases.''

Brent Hopkins, [phone]

brent.hopkins(at)dailynews.com

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SOURCE: American Automobile Association 

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