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    Fuel Prices Expected to Rise

    Sweeping changes in the refining business could make oil more volatile than ever.


    NEW YORK -- Just a year ago, Midwestern fuel prices rocketed to more than $2 a gallon, while the average pump price in California leaped by 15 percent, peaking in May at $1.95.

    Since then Sept. 11 attacks and the broader recession have pushed down prices. But sweeping changes in the refining business are aligning to make gas prices more volatile than ever, according to The Wall Street Journal.

    The rampant merger and acquisition activity that has spread throughout the petroleum marketing industry has consolidated control to fewer and fewer hands. Most of the resulting behemoths have also gained greater dominance over convenience stores and gas stations in certain markets, the report said. That concentration of power has pushed gas prices higher in regional markets where competition has dwindled.

    Oil moves from earth to car in three basic stages. Producers pull crude oil from the ground in places such as Saudi Arabia and south Texas. Refiners boil the crude oil and add chemicals to turn it into gasoline and other fuels. Gas then moves by pipeline and truck to stores. Increasingly, a shrinking roster of companies are performing two, or all three, of these roles.

    After a wave of mergers, the nation's top six refiners now control 59 percent of that business in the U.S., up from 41 percent in 1990, according to government and industry figures. When all of the mergers are completed, a similar group of six companies will own or franchise 55 percent of the nation's 175,000 gasoline stations, compared with 30 percent in 1991, the report said.

    As companies trim inventory, overall supply in certain regions decreases, making sudden price increases more likely. Refiners are "all trying to manage a fine line," said Mike Mears, vice president of transportation and fuels at Tulsa, Okla.-based Williams Cos., owner of a 9,000-mile Midwest pipeline system. "When you have these blow-ups in prices, [refiners] have probably miscalculated."

    The trends hurting the refining business are most visible in California, where gasoline prices often ring up 30 cents a gallon higher than in the rest of the country - and stay higher longer. That gap ballooned in the late 1990s, partly because of new California requirements for low-emission gasoline that the industry says is more expensive to produce.

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