Pushing California gasoline prices higher

It has been reported that supply disruptions in the tightly balanced and relatively isolated California gasoline market have increased wholesale and retail gasoline prices over the past several weeks. This follows market adjustments to compensate for lost production following the February explosion and fire at the ExxonMobil owned Torrance refinery. Average retail prices for regular gasoline in California as a whole, and in LA specifically, have risen by 57 cents/gal. and 63 cents/gal. respectively, in the past three weeks, while US average retail gasoline prices have increased by 20 cents/gal.

The costs of altering supply sources, along with planned and unplanned refinery outages and delayed resupply, have contributed to the gasoline price increases. The spot price in LA for California Reformulated Blendstock for Oxygenate Blending (CARBOB) gasoline was US$2.76/gal. on April 29, a premium of 75 cents/gal. to the New York Mercantile Exchange Reformulated Blendstock for Oxygenate Blending (RBOB) front month futures contract, a standard pricing basis for gasoline. CARBOB and RBOB are different formulations of the petroleum based component of gasoline, into which ethanol is blended to form finished gasoline.

Regional focus

The West Coast (PADD 5) is relatively isolated from other US markets and located far from other sources of supply, making the region dependent on in region production to meet demand. Additionally, California’s more restrictive gasoline specifications can limit the availability of supply from other markets. When a supply disruption occurs on the West Coast, the region can be resupplied in four ways: in region inventories, intra PADD marine movements from other West Coast refineries, PADD to PADD marine movements, and imports.

In region inventories

West Coast inventories of gasoline typically fall in the months of February, March and April. However, inventories fell by 4.2 million bbls in the six weeks after the Torrance refinery outage, a decline of 2.2 million bbls more than the 5 year average decline for the same period. As the region’s supply patterns adjusted, PADD 5 gasoline inventories stabilised, and they are currently 27.6 million bbls, 0.8 million bbls above the same time in 2014.

Intra PADD marine movements

Mainland PADD 5 lacks pipeline infrastructure to move supplies between the in region refining centres. As a result, supplies must move via coastwise compliant marine vessels. However, recent planned and unplanned refinery outages on the West Coast have limited the availability of gasoline supplies to be shipped to Southern California. PADD 5 gross refinery inputs fell to 2307 bpd for the week ending April 24, the lowest since April 2013, and were 2314 bpd for the week ending May 1 compared to 2489 bpd last year, contributing to higher gasoline prices.

PADD to PADD marine movements

Gasoline supplies may move from PADD to PADD, using coastwise compliant vessels. Historically, there have been marine movements of gasoline from the Gulf Coast (PADD 3) to PADD 5, although infrequently and in small quantities. The last shipments of gasoline from the Gulf Coast to the West Coast occurred in June 2013, totalling 53 000 bbls.

Imports

Companies have increased West Coast imports. However, due to Asia being the closest global source of additional California specification gasoline, it takes several weeks for resupply to reach the West Coast. PADD 5 imported an average of 19 000 bpd of motor gasoline in 2014, but approximately five weeks after the Torrance disruption, PADD 5 imports of motor gasoline had risen to 143 000 bpd for the week ending March 27. PADD 5 has since continued to import motor gasoline above normal levels, with a four week average of 49 000 bpd for the week ending May 1 helping to keep inventory levels stable. With imports accounting for a greater share of supply, recent disruptions and delays in shipments have contributed to wholesale and retail gasoline price increases.

Edited from press release by Claira Lloyd

Read the article online at: https://www.hydrocarbonengineering.com/refining/12052015/california-gasoline-prices/