Rise in gas prices

A nickel more at the pump can be a pain, all the greater for drivers of gas-guzzlers. In the long run, however, a pain can become a major drain.

Michael Bazdarich, a senior economist at UCLA's Anderson Forecast, said the recent rise in gasoline prices has taken $12 million a day out of the pockets of 1.os Angeles con sumers--money that otherwise would be spent on discretionary consumer goods.

"That's about a hall percent of gross regional product being diverted to extra gas prices," he said. "If it's a short-term effect, it's probably not going to change too much of how people go about their business. But if it stays for a while, delivery companies will have to conserve gas and businesses in general will have to cut down on their fuel costs."

If gas prices remain at current levels statewide, California consumers would be paying $6 billion extra a year out-of-pocket--the equivalent of half the state's current budget deficit, he said.

On the local level, that translates to $4.6 billion a year.

Tracy Clark, an economist at Arizona State University's W.P. Carey School of Business, said the extent of the impact depends on how long gasoline prices stay at high levels.

"We'd have to get up to about $2.55 a gallon before we hit the same real impact, adjusted for inflation, that we had in the 1979-80 price spikes," he said. "Obviously, gas prices are going to probably hit their high point sometime during the summer when demand is highest."

Several economists have laid the blame for higher gasoline prices--and demand in the U.S.--squarely on the shoulders of the American love of sport utility vehicles, which typically get far fewer miles to the gallon than smaller vehicles.

Demand has jumped 1.5 million to 2 million barrels a day since 1999, the additional demand attributed to SUVs.

Gasoline inventories, or demand levels, hit 8.7 billion barrels nationally for the week ended March 26--the highest rate of consumption since the week of July 4, 1999.

"You have a nation driving around in FedEx delivery trucks and calling them family vehicles," said Walter Zimmerman, vice president of United Energy, a New York energy brokerage firm. "There's this insatiable desire to connect gasoline prices to OPEC, which is ridiculous since the added demand is coming directly from SUVs."

Energy economist Philip K. Verleger Jr., president of PKVerleger LLC, a consulting firm in Newport Beach, who testified last week at an Assembly committee hearing on California's high gasoline prices, believes the high prices are here to stay.

"If we have limited supply and limited refining capacity and demand keeps growing because we insist on buying SUVs, then prices will have to increase 10 percent to 20 percent a year," he said.

Energy Secretary Spencer Abraham announced last week that the Environmental Protection Agency would consider giving California an exemption from stringent clean-air rules. Such a change would allow refiners to eliminate the use of ethanol or the gasoline additive MTBE, which add about 10 cents a gallon to the pump price of gas.

"It's certainly not a panacea but it will have an effect of bringing crude oil prices down and there will be more flexibility in the refining system," said Gregg Haggquist, principal of Monterey Global Energy in Long Beach and a consultant to the California Energy Commission, which requested the EPA waiver.

The waiver would ease shortages this summer by allowing California to buy non-boutique blends of gasoline.

Still, prices are likely to remain high because of California's geographic isolation, which makes it expensive to deliver crude by truck or domestically by ship.

Moreover, the price of crude is higher today than are forward prices for delivery in May, which means distributors would make less money by shipping in upcoming months.

"Even if you relax the EPA specification, we can still expect to pay significantly higher for gasoline," Haggquist said.

Price swings have been particularly severe this year. Since early January, gasoline pump prices have shot up 48 cents, on average, to $2.11 a gallon in Los Angeles, according to the Energy Information Administration. But in California still outstrips supply.

Only 13 refineries operate in the state, producing roughly 42 million gallons per day at peak capacity. That's below the estimated 42.5 million gallons of demand.

Investors and money managers that trade crude oil futures do so in the belief that refineries in California will fall offline for repairs--or be forced to divert supplies to Arizona and purchase from other markets--causing prices to shoot up dramatically.

"We could be looking at new all-time highs in gasoline this summer," said Zimmerman.