Published Friday, June 30, 2000, in the San Jose Mercury News

Prices go back up for Bay Area gas Rise could continue with oil shortages BY GARY RICHARDS Mercury News

Gas prices have soared as much as 16 cents a gallon this week in the Bay Area and could be headed even higher.

The increase ends a three-month decline in prices statewide, but even with the jump motorists here are paying considerably less than drivers in the Midwest, who have been forking over as much as $2.40 a gallon.

But some experts are predicting another roller coaster ride at the pump for Bay Area drivers -- who have seen wild price spikes every year since 1996 when reformulated gas was first introduced.

``I think it's going to break two dollars a gallon here, just like in metro areas like Chicago and New York,'' said Dennis DeCota, executive director of the California Service Station and Automotive Repair Association based in Novato. ``There's definitely a shortage of oil and the way you address a shortage is raise prices to curtail demand.''

Signs of looming price increases are everywhere. Tosco, the state's second-biggest refinery, and Shell sent notices Wednesday to their stations along the West Coast that gas supplies were being rationed following production ``glitches'' at Tosco's refinery in the Bay Area. In addition, an industry newsletter said Chevron's output had dropped after ``a minor problem'' at one of its refineries.

Coast Oil, owner of the independent Rotten Robbie stations, is paying ``dramatically more'' to buy excess gas from leading refiners, said a company official. The price of gas on the spot market jumped from $1.03 to $1.25 a gallon this week, prices that translate into nearly $1.90 a gallon at discount stations.

Crude oil reserves are down 11 percent nationwide and 16 percent in California from a year ago. The state's supply of reformulated fuel is down 3.4 percent.

The Organization of Petroleum Exporting Countries (OPEC) gets much of the blame, because its cuts late last year are still rippling throughout the world. When crude prices first topped $30 a barrel last winter, many oil companies cut back purchases, hoping to be able to buy cheaper crude in the future.

But as OPEC held firm and supplies dwindled, prices soared. First in California earlier this year, then in the Midwest where clean-burning but more expensive gas went on sale June 1. Now, the impact is spreading west again and comes on the eve of the long July 4 weekend, when a record 4.7 million Californians are expected to take their cars, sport-utility vehicles and motor homes onto the state's highways.

``The timing stinks,'' said motorist Kent La of San Jose, who grumbled as he filled up his Toyota truck at a Beacon station on 13th Street in San Jose on Thursday. The going price for self-serve unleaded: $1.75 a gallon, up from $1.59 a week ago. ``We're driving to Seattle. Better bring along more cash.''

The California average jumped two cents last week to $1.64 a gallon, two cents lower than the national average of $1.66, according to the California Energy Commission. San Jose motorists were paying around $1.75 a gallon before the increases this week.

The biggest uproar has been in the Midwest. While California has dealt with wild price spikes for four years, motorists nationwide were paying less than $1 a gallon two years ago. The rise to more than $2 a gallon has been a shock and led to outrage from politicians and motorists:

The Federal Trade Commission is investigating pricing in the Midwest and has begun issuing subpoenas to refiners, pipeline operators and others in the production and distribution chain.

Indiana will suspend its 5 percent gasoline tax beginning Saturday and Illinois will suspend its gas tax for six months to bring down prices.

Wisconsin, where gas is selling for $1.82 a gallon on average, filed a lawsuit in federal court to overturn the EPA's requirement to sell cleaner burning reformulated gasoline in the state.

Many station owners in the Midwest say motorists are filling their tanks and then fleeing without paying. Only one in 10 stations there require drivers to pre-pay, a common practice in the Bay Area. Usually, gas prices begin falling after Labor Day when kids return to school and their parents drive less.

``Prices should start to drop,'' said Rob Schlichting of the state energy commission in Sacramento which issued a news released Thursday indicating the state should be able to meet summer driving demands. ``The glitches we see are minor.''

But others fear supplies could get tighter, hurt further by a refinery explosion in Kuwait last weekend that reduced that country's daily crude oil output by about 20 percent. As winter approaches, officials in Washington worry that there might not be enough oil to keep homes warm in the Snowbelt and that they may have to divert oil intended for cars to heat homes.

``The rest of the country is screaming and yelling,'' said DeCota. ``It may be our turn.''

Again.

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-- Martin Thompson (mthom1927@aol.com), June 30, 2000