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Consumer Advocates Call Attention to Discrepancy Between Wholesale and Retail Gasoline Prices in L.A.

January 22, 2008

LOS ANGELES --- Consumer advocates and some energy analysts are calling attention to the major discrepancy between gasoline wholesale and retail prices, asking why prices at the pump remain so high in the Los Angeles area, according to an L.A. Times report. Middlemen who buy and sell fuel on the wholesale market have seen L.A. gasoline prices decrease more than 50 cents a gallon in the past couple weeks. But that price drop hasn't been reflected in retail prices for consumers. Last Friday, for example, the wholesale gasoline price in L.A. was around $2.17 a gallon; that's roughly equal to a retail price of $2.77 a gallon after taxes and other costs. However, yesterday service stations in the city were selling self-serve regular for an average of $3.221 a gallon. Critics of the retail pricing have also argued that a few California refineries have cut production, speculating that the move may be a deliberate effort to keep wholesale prices high. "The California economy has been penalized by high gas prices for months, and now, when the opportunity comes for a brief window of significantly lower prices, the workings of the market are being frustrated," energy economist Philip K. Verleger Jr. told the Times. "The people who own refineries are doing everything they can to prevent [the declining wholesale price] from trickling down to the consumer." During a Times interview, Joseph Sparano, president of the Western States Petroleum Association, acknowledged "there seems to be a pretty wide gap between wholesale and retail" prices for gasoline. However, he said that retail prices were beginning to fall and the California fuel market was working the way it was supposed to. "When supply is up and demand is down, the market will seek an outlet so that they come back in balance," Sparano told the Times. "That's still a fact of life in a capitalist system." Gasoline supplies for the region have climbed more than 20 percent since mid-November. For most of last week, the cost of gasoline on the L.A. spot market for California's specialized fuel blend was more than a dime lower than the comparable price in New York. That's quite unusual. For years, L.A.'s wholesale prices have been well above the spot market in New York, the Times reported.
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