California's 'Perfect Storm' Gas Prices Hit All-Time High

Published in CSP Daily News

Valero stops selling gasoline in Golden State's spot market, continues to supply retail stations

LOS ANGELES -- Gasoline prices in California rose to another all-time high on Sunday after passing a four-year high a day earlier, according to AAA. The four-cent-per-gallon jump Sunday was even bigger than Saturday's jump, which was just a fraction of a penny, reported the Associated Press.

Valero Energy Corp.  said Thursday it temporarily stopped selling gasoline in California's wholesale "spot" market as a string of refinery outages resulted in a regional gasoline shortage, reported MarketWatch.

Valero said it will met its current contracts to supply gasoline, but won't sell into the spot market. But spokesperson Bill Day told the news service that resumption of spot sales "will depend on markets and inventories."

The company also will continue to supply gasoline to its branded and licensed retail stations in the state, Day said. Valero took the unusual step after a series of shutdowns at Richmond and other refineries, said the report.

AAA reported in its latest update on Sunday that the statewide average price for a gallon of regular unleaded gasoline is $4.655. Saturday's average of $4.6140 was the highest since June 19, 2008, when it was $4.6096.

Sunday's price, like Saturday's, was the highest in the nation, with the Golden State leapfrogging Hawaii this week as the state with the most expensive fuel due to a temporary reduction in supply, said AP.

Californians are paying 24 cents per gallon more than motorists in Hawaii, according to the AAA report. In some locations, motorists paid $5 or more per gallon while station owners had to shut down pumps in others, the report added.

AAA's Daily Fuel Gauge report said the national average both Saturday and Sunday was about $3.81 a gallon, the highest ever for this time of year; however, gasoline prices in many other states have started decreasing, which is typical for October.

The dramatic surge came after a power outage Monday at a Southern California refinery that reduced supply in an already fragile and volatile market, analysts said, but the refinery came back online Friday and prices were expected to stabilize by next week.

Patrick DeHaan, senior petroleum analyst at GasBuddy.com, predicted the average price could peak as high as $4.85.

"There is some relief in sight but probably not for a couple of days. Early next week is when we may see some more significant declines ... but at retail prices, prices may climb for the next two to three days before they start to come down," he told AP.

A series of refinery and transmission problems is to blame, analysts said. The situation is compounded by a California pollution law that requires a special blend of cleaner-burning gasoline from April to October, said Denton Cinquegrana, executive editor of the Oil Price Information Service.

"We use the phrase 'the perfect storm,' and you know what, this current one makes those other perfect storms look like a drizzle. I don't want to scare anyone, but this is a big problem," he told the news agency. "Runouts are happening left and right."

Among the recent disruptions, an August 6 fire at a Chevron refinery in Richmond, Calif., that left one of the region's largest refineries producing at a reduced capacity, and a Chevron pipeline that moves crude oil to Northern California also was shut down.

ExxonMobil said a refinery in Torrance returned to normal operations Friday after the power failure October 1 disrupted production for most of the week. State officials said with the refinery coming back online, prices should start falling.

With Valero and possibly other refiners leaving the spot market, independent gas stations not holding supply contracts will start shutting down after their fuel runs out, said Avery Ash, manager of regulatory affairs at AAA.

"The stations that don't have contracts from the major retailers--the mom-and-pop station and Costcos--may decide not to sell gasoline at this point," he told MarketWatch. "With spot prices that are well north of $4 a gallon, you're needing to sell retail gasoline near that $5 mark, and they may not see the point of doing that."

The situation could last for weeks until West Coast refineries return to normal production rates, Ash added.

For Jafar Rashid, the crunch has already come. Rashid said he closed one of his Los Angeles stations Wednesday because it became too expensive to buy more fuel for the pumps.

"My street price is $4.69," Rashid told the news agency. "But if I was going to buy the gas [wholesale and] it was going to cost more than $5. I can't pay that, it's too expensive. I'd rather close the gas station."

Rashid also owns four Chevron stations but said he has been able to keep those open. The station he shut down Wednesday will also be converted to a Chevron station soon, he said.

"I don't want to buy independent gas anymore," he said.

(See Related Content below for Lundberg's analysis of the Situation in California.)