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California Braces for Gas Price Increases Following OPEC’s Decision to Cut Production of Crude

April 5, 2004

OPEC's decision on March 31 to cut oil production by 4 percent likely will drive gasoline prices in California up by as much as 8 cents a gallon within a week, pushing the cost of fueling cars to record levels, according to the Los Angeles Daily News. Experts said the action by the Organization of Petroleum Exporting Countries (OPEC) in Vienna, Austria, would further squeeze already tight supply levels in California and drive up prices if all the nations carry out the cut. The average price of regular in Los Angeles had inched lower to $2.131, according to the Automobile Club of Southern California. But the reprieve could be short-lived as a change in oil-output levels abroad and continued supply woes domestically could send gasoline prices past the March 4 record of $2.20 a gallon. Crude oil dictates about 50 percent of the price of gasoline and inventories are already well below average in California. That coupled with a dwindling supply of gasoline is re-igniting worries about another uptick in prices. "Supply levels are really sensitive in California right now and prices on the wholesale market are already moving higher," said Denton Cinquegrana, markets editor at the Oil Price Information Service in Lakewood, N.J. Refinery glitches and seasonal factors pushed wholesale prices up in February, a trend that eventually reached the retail market. However, the wholesale prices soon leveled off and began falling by as much as 30 cents in March. Not so after OPEC implemented a expected cut in production levels. Despite OPEC's decision, some industry watchers are not convinced that countries will cut their output levels. Many of the top-producing countries depend on oil as a major revenue driver for their respective economies. For that reason, a country that is already enjoying the benefits of heightened demand might not be as willing to follow OPEC's lead.
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