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Tight supply pushes gas prices higher

BELLINGHAM — Tight gasoline supplies on the West Coast are combining with continued high crude oil prices to create pain at the pump for motorists from here to San Diego.

“In any market, when you start to get a shortage, prices start to go up,” said Bill Kidd, spokesman for BP Cherry Point refinery. “It’s a pattern that we’ve seen on the West Coast multiple times.”

West Coast refineries don’t produce enough gasoline to meet demand. Because the region is isolated from other sources of supply, imports must be shipped by sea from the Gulf of Mexico or Singapore, and that’s expensive, Kidd said.

This spring, supplies are tighter than normal because some western refineries have had breakdowns that have temporarily reduced their output. At the same time many refineries were cutting output as they did their annual maintenance projects and made adjustments to switch to summer fuel blends.

Tim Hamilton is executive director of Automotive United Trades Organization, a retailers’ group. He said the refiners boost

prices when supplies get tight in order to reduce consumption a bit. If they didn’t do that, some stations would run out of gas and lines would form at the stations that still had fuel, Hamilton said.

TEMPORARY OUTAGES

This spring, Hamilton said, refiners may have cut things a little too close. Two weeks ago, some Union 76 stations in the Seattle-Tacoma area were without gas for a day or more.

A spokesman for Conoco Phillips, which supplies Union 76 stations, confirmed that.

“We did have temporary supply outages in the Renton and Tacoma areas due to logistic issues that limited our ability to bring additional supplies into the area,” spokesman Terry Hunt said in an e-mail message.

Besides the West Coast refining shortfall, international tensions are helping to keep the price of crude oil above the $60- a-barrel range, and that is the biggest factor in the price of gasoline, said Tupper Hull, spokesman for the Western States Petroleum Association.

PRICE OUTLOOK

Hull and others in the industry refused to speculate on whether the price of gasoline has peaked for now. Hull did say that West Coast prices “appear to be getting more volatile rather than less volatile as time goes on. ... We are in an environment today where demand for this product continues to go up. Our ability to produce this product is somewhat constrained.”

Tom Kloza, publisher and chief oil analyst at Oil Price Information Service, said in an email message that prices should ease in the not-too-distant future as refinery output increases, and gasoline prices already are dropping on futures markets.

“This was a year which saw an unusually high amount of refinery downtime,” Kloza said.

Kloza’s service provides gasoline price information to paid subscribers.

PRODUCERS, REFINERS WIN

Who gets more money when prices climb? In this case, the money has gone to oil producers and refiners, Kloza said.

“Most of the windfall in this entire event has taken place in the space between the wellhead and the refinery gate,” Kloza said. “The markup from that point, whether through a distributor or a retailer, has been less than normal.”

In a recent blog entry, Kloza estimated that retailers’ margins nationwide have averaged about 12 cents a gallon — before deductions for credit card fees and other expenses.

Mike McEvoy is a partner in McEvoy Oil Co., a local fuel distributor. He agreed that margins for distributors and retailers have been thin under current market conditions, as refiners raise prices in response to supply and demand.

“The oil companies are going to keep testing the market until we start to see the demand drop,” McEvoy said. “I don’t think the oil companies have figured out when the consumer is going to stop buying.”

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