OK, I went to buy Gasoline yesterday and it was about $1/2 per gallon higher than the last time I’d bought any. European folks will think this price very low, but for the USA it’s in the “nearly unheard of” range. It cost me $4.79 / gallon. Typically at about $5 a gallon we’re looking at some kind of natural disaster (quakes / hurricanes) and folks start talking about “price gouging” laws and arresting someone…
I’d not seen anything in the news, but then again I rarely watch “local” news. The impending war between Turkey and Syria and even the Iranian Bluster was unlikely to be moving international oil prices. But a quick check of some of “the usual” sources was enlightening. IMHO it all comes down to CARB (California Air Resources Board) rules and some refinery issues. CARB demands “special” gas here in California, and on very particular schedules. So we can’t ship gas in from out of state locations if something “goes bump in the night”. It also demands a swap from “summer” gas to “winter” gas on a particular schedule. This means ALL the refineries must swap on the same schedule AND that if one goes down unexpectedly, you can’t just keep running another one a few weeks longer. It MUST shut down on schedule and swap over production on schedule. The clues are in this article:
California Gas Stations Shut as Oil Refiners Ration Supplies
By Lynn Doan and Joshua Falk – Oct 4, 2012 2:48 PM PT
Gasoline station owners in the Los Angeles area including Costco Wholesale Corp. (COST) are beginning to shut pumps as the state’s oil refiners started rationing supplies and spot prices surged to a record.
Valero Energy Corp. (VLO) stopped selling gasoline on the spot, or wholesale, market in Southern California and is allocating deliveries to customers. Exxon Mobil Corp. (XOM) is also rationing fuel to U.S. West Coast terminal customers. Costco’s outlet in Simi Valley, 40 miles (64 kilometers) northwest of Los Angeles, ran out of regular gasoline yesterday and was selling premium fuel at the price of regular.
OK, we’ve low inventory of gasoline going into this, now we’ve got refineries “rationing”. That implies a local refinery problem (as we don’t import ‘foreign’ gasoline from outside the State much). It’s not price driven via crude, it’s availability driven via refining capacity.
The gasoline shortage “feels like a hurricane to me, but it’s the West Coast,” Jeff Cole, Costco’s vice president of gasoline, said by telephone yesterday. “We’re obviously extremely disheartened that we are unable to do this, and we’re pulling fuel from all corners of California to fix this.”
Spot gasoline in Los Angeles has surged $1 a gallon this week to a record $1.45 a gallon premium versus gasoline futures traded on the New York Mercantile Exchange, data compiled by Bloomberg show. That’s the highest level for the fuel since at least November 2007, when Bloomberg began publishing prices there. On an outright basis, the fuel has jumped to $4.3929 a gallon.
Again we’ve got “Special Circumstances” in California vs the rest of the county. (During hurricanes in the south, refineries will be shut while everyone wants to buy gas to ‘get out of town’, often leading to price spikes near $5 / gallon.)
Gasoline at the pump gained 8.3 cents to $4.315 a gallon in California yesterday, according to AAA.com, 53.1 cents more than the national average of $3.784. In Los Angeles the price was $4.347. Gasoline futures for November delivery on the Nymex rose 14.34 cents to settle at $2.9429 a gallon, after falling yesterday to a 10-week low. Retail price movements tend to lag behind those of futures.
Nymex is under $3 while California is jumping… But why?
“Product supply in California has tightened, especially in Southern California, due to refinery outages,” Bill Day, a Valero spokesman at the company’s headquarters in San Antonio, said by e-mail.
Exxon’s Torrance refinery is restoring operations after losing power Oct. 1. Phillips 66 (PSX) is scheduled to perform work on gasoline-making units at its two California refineries this month, two people with knowledge of the schedules said. A Chevron Corp. (CVX) pipeline that delivers crude to Northern California refineries was also shut last month due to elevated levels of chloride in the oil.
So here we start to “get clue”. First off, looks like a large electric failure took down an Exxon refinery. It takes time to restart a refinery, especially one that crash-shutdown during a power fail. We’ve got a government that is increasingly pushing us toward an unstable electric supply and here is an example of why stable electricity matters. I don’t know what caused that outage, but regardless of cause, it shows why stability matters.
We’ve got Phillips 66 with scheduled maintenance to be done. Can’t just keep running the units (as they will be making “Summer Gas”). Then the very curious one. Chevron has some salt in the oil? THAT shuts down a pipeline? Really? I have no idea what “rule” that comes under. You’d also think someone would be monitoring salt in the oil at the input end and only letting sweet stuff in. While the “consumer” in me wonders if maybe it wouldn’t be remarkably easy to dump a little salt in the oil and cause a dramatic price spike in California (there was demonstrated price manipulation by Standard / Chevron in years past with planned differences in prices based on ‘ability to pay’ in different California sub markets. So we have precedent for price manipulative behaviour.) Still, people “screw up” and it’s possible someone just unloaded a boat load of oil somewhere that wasn’t what they expected. That will be an interesting detail to explore (if it ever comes out).
Low-P, a gasoline station in Calabasas, California, 30 miles west of Los Angeles, stopped selling unleaded gasoline Oct. 2 and ran out of high-octane and medium-octane fuel yesterday, John Ravi, the station’s owner, said by phone yesterday. Ravi said he posted an “Out of Gasoline” sign on each pump and took down the prices outside his shop.
“I can get gas, but it’s going to cost me $4.90 a gallon, and I can’t sell it here for $5,” Ravi said. “If you come here right now, I’ve got some diesel left. That’s all. My market is open, but no gas.”
Looks like it’s going to get worse. So almost $5 at the wholesale spot. That’s “regular”, so add 40 cents or so for premium.
“The squeeze is on, and people are doing desperate things,” Bob van der Valk, an independent petroleum industry analyst in Terry, Montana, said by e-mail yesterday. “The mom- and-pop gas stations are having to close down from either not being able to obtain gasoline from their regular distributor or cannot afford the break-even price of almost $5 per gallon.”
Van der Valk called the price surge a “a short-term problem.” Wholesale costs should start falling as Exxon’s refinery returns to normal operations and other plants finish maintenance.
Even a major outlet like Costco (a large “big box discounter” membership store with outlets all over the place) can’t get gas. They see the Exxon refinery as the key, and it may well be in Southern California. Northern California is more likely being impacted by the Chevron Pipeline (a guess on my part, but Chevron has always been a big player in the N.Cal. refining market)
The California Independent Oil Marketers Association, a Sacramento-based group that represents wholesale and retail fuel marketers, asked the state yesterday to expedite a waiver that would allow refiners to produce and sell winter-grade fuel, Jay McKeeman, a spokesman for the association, said by telephone yesterday.
“Everybody is concerned about what might happen,” he said. “The real question is: How long is this going to last and what can the state do?”
California’s summer-blend fuel requirements are in effect in Southern California until Oct. 31. The Reid Vapor Pressure, or RVP, limits are lifted in other areas of the state as early as Sept. 30.
The state Air Resources Board and Energy Commission are evaluating fuel supplies and haven’t decided on the waiver, Dave Clegern, a spokesman for the air board in Sacramento, said by e- mail.
So here we have the regulatory impact point. SoCal refinery schedules require them to keep running the Summer Blend for another month, but that means they ought to be shut down for conversion “soon” AND it means they can not import “winter blend” from other parts of the State (or out of State). Here in N.Cal we can start selling the winter stuff now, in selected places (like Tahoe up in Ski Country). That tends to “fix” refinery maintenance schedules and it tends to prevent the import of gasoline from other areas. In a free market, large trucks would be filling up with gasoline in Dallas and unloading here, taking advantage of the price differential (and limiting it).
In a Government Regulated Market, well, when shit happens you wait for the bureaucrat to read his email, have a coffee break, finish his meetings with the boss, plan that Rio Junket, and ask around about what would be most politically correct…
A brittle mandated schedule for refinery swap of fuel type runs head long into a power failure driven refinery shutdown, nobody can take any “corrective action” as the “allowed” actions are set by law and regulation. The ‘salty oil’ angle is a new one for me, and has interesting possibilities. Who sets the limits for chloride in oil? Which end of the pipeline? A “dig here” that I’m unlikely to be able to explore ( too many things to do…).
The State of California wants to run its own little empire, unique and isolated from the rest of the Country. Special rules. Special fuels. Government calling the shots. The end result is an inflexible brittle system that costs more and can’t take a local power failure. We have also begun to operate our own version of “Cap and Tax”, and I’m sure that too has an impact on the ability to do things like ship in oil products from other locations. Businesses were already “leaving in droves”. People have been leaving too, though at slower rates. Now I’m wondering if there will be enough gas to do that leaving…
I’d also suggest that anyone thinking of visiting California in the next month, don’t bother. Not going to be pleasant. Anyone planning conventions? Probably best to plan them for a State where they have reliable electricity and gasoline is less prone to going “offline”. Chicago has good facilities and is centrally located. Dallas too. Heck, even Las Vegas has good air and taxi services and lower costs. Need a beach? The entire Gulf Coast and Florida has great beaches and a whole lot less oppressive regulation of them (Santa Cruz tosses you off the beach at 10 pm, and more… oh, and it’s a 20 minute walk from the beach to the parking, so if you leave the beach AT 10, you get to the car in time to find a team of ticket writers started writing parking tickets AT 10…) Besides, that southern water is warm and has great fishing. Our water is cold and fishing regulations are a small novel… In short: We’re having “issues”, could you come back some other time?…
Me? I’m thinking about this weekend. Maybe a six pack in the back yard will be a better weekend plan than that trip to the beach, or driving up to San Francisco… Then the same political establishment wonders why tourism is down and why restaurant sales are down and why folks just aren’t spending. Well, if you can’t GET to the store or show you can’t spend there. When I can walk to the grocery store and buy a bottle of wine for less than the cost of ONE gallon of gas (and it takes about 5 for a round trip to San Francisco) just how interested am I in driving to San Francisco for ANY event or night out?
So I’m likely to be “Going Green” this weekend and NOT using the car. (That means I’ll be not buying a Red wine, but getting a German Style White as they are made with greenish colored grapes ;-) and having it with a BBQ chicken instead of beef…) I’m sure a large number of folks will be looking at the “price at the pump” and shifting travel (and spending) plans. So as we become a bunch of “shut-ins” this weekend, just remember that a pretty good Box Wine is about the same price as two gallons of gas. That’s about 5 bottles of wine in a box. Enough for a decent “going nowhere neighborhood party”. Maybe I’ll start a trend… The “Going Nowhere Weekend” block party ;-) Hey, maybe the cops will run out of gas too and we can make it a real blow out! /sarcoff>;