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Comments on California refinery shutdowns and slowdowns

Hydrocarbon Engineering,

Consumer Watchdog has said that California refinery shutdowns and slowdowns are boosting refinery profit margins by as much as 72%, according to crack spreads. Crack spreads represent the difference between what refineries pay per barrel of crude oil and what they charge for the products they make out of it. Spreads have rocketed with the spike in gasoline prices following refinery shutdowns and they are an early indicator of a windfall for refineries.

Cody Rosenfield from Consumer Watchdog said, “the increased profits are coming at the expense of California consumers who are missing out on the relatively low gas prices being enjoyed by the rest of the nation. Despite the suspicious timing of the closures and slowdowns, the state has not responded to calls from Consumer Watchdog demanding an investigation into the authenticity of refiners’ claims.”

Shutdowns and gasoline

Since the shutdown of the Tesoro Martinez refinery and damage from an explosion at the Exxon Torrence refinery, profits from the widening spreads for Kern River crude stand at a reported US$31/bbl. Before the occurrences, refineries were making a profit of US$18 on the products made from a barrel of crude. Prices at the pump in California have soared 60 cents since Tesoro began to shut the Martinez facility in early February, bringing the price per gallon above US$3 for the first time this year.

Rosenfeld commented, “they also keep only a 10 day supply of gasoline on hand, so any hiccup in refinery operations spooks markets and helps provide an opening for refineries to manipulate prices. The rest of the country keeps an average of a 24 day supply on hand, a standard California lawmakers should mandate refineries meet in California.”

The gasoline market in California is controlled by a handful of big companies that retain a monopoly grip on California’s gasoline supply because they produce almost all of its supply in order to meet stricter environmental standards. Wholesale spot prices in Los Angeles climbed another 14 cents on the night of 24 February, reaching US$2.17 /gal., a 50 cent increase since the Martinez shutdown began. Spot prices in Los Angeles had not reached that height since November 12 2014.

Edited from press release by Claira Lloyd

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