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Wednesday, May 13, 2015
California Gasoline Prices Higher Than Rest of Country
Source: U.S. Energy Information Administration, Gasoline and Diesel Fuel Update
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 comes after markets had adjusted to compensate for lost production following the February explosion and fire at ExxonMobil's refinery in Torrance, California. Average retail prices for regular gasoline in California as a whole, and in Los Angeles specifically, have increased by 57¢ per gallon (¢/gal), and 63¢/gal, respectively, in the past three weeks, while U.S. average retail gasoline prices have increased by 20¢/gal.
The costs of adjusting supply sources, along with planned and unplanned refinery outages and delayed resupply, have contributed to the gasoline price increases. The spot price in Los Angeles for CARBOB (California Reformulated Blendstock for Oxygenate Blending) gasoline was $2.76/gal on April 29, a premium of 75¢/gal to the New York Mercantile Exchange (Nymex) 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.
Source: U.S. Energy Information Administration, Bloomberg Note: L.A. denotes Los Angeles; CARBOB denotes California Reformulated Blendstock for Oxygenate Blending; Nymex denotes New York Mercantile Exchange; RBOB denotes Reformulated Blendstock for Oxygenate Blending.
The West Coast (defined as Petroleum Administration for Defense District (PADD) 5) is relatively isolated from other U.S. 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 barrels in the six weeks following the Torrance refinery outage (February 20-March 27), a decline of 2.2 million barrels more than the five-year average decline for the same period. As the region's supply patterns adjusted, PADD 5 gasoline inventories stabilized, and they are currently 27.6 million barrels, 0.8 million barrels above the same time last year.
Intra-PADD marine movements. Mainland PADD 5 lacks pipeline infrastructure to move supplies between the in-region refining centers (Washington, San Francisco, and Los Angeles). 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 2.3 million barrels per day (b/d) for the week ending April 24, the lowest since April 2013, and remained near 2.3 million b/d for the week ending May 1, compared to 2.5 million b/d last year, contributing to higher gasoline prices.
PADD-to-PADD marine movements. Gasoline supplies may also move from PADD to PADD, using coastwise-compliant vessels. Historically, there have been marine movements of gasoline from the Gulf Coast (PADD 3) to the West Coast (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, totaling 53,000 barrels.
Imports. Companies have also increased West Coast imports. However, because Asia is 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 barrels per day (b/d) of motor gasoline in 2014, but approximately five weeks after the Torrance refinery disruption, PADD 5 imports of motor gasoline had increased to 143,000 b/d 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 b/d 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. (DOE-EIA)