Gas Prices, Supply Shortage Forcing Pump Closures in California
Stations begin to shut off dispensers over record high costs
Published in CSP Daily News
LOS ANGELES -- Gasoline retailers in the Los Angeles area are beginning to shut down their pumps because of supply shortages that have driven wholesale fuel prices to record highs, reported Bloomberg.
A Chevron pipeline shut down last month, an October 1 power failure at ExxonMobil's Torrance refinery and units down at other plants have cut supplies in the market. Chevron's pipeline, which carries crude from Kern County to Northern California refineries operated by Shell, Tesoro and Valero, remained shut after elevated levels of organic chloride were detected in the oil. Phillips 66 is also scheduled to perform maintenance on process units at its Rodeo and Los Angeles refineries this month, people familiar with the schedules said. Chevron's Richmond plant, the largest refinery in Northern California, has been running at reduced capacity since a fire August 6.
Costco Wholesale Corp.'s outlet in Simi Valley ran out of regular gasoline on Tuesday and was selling premium fuel at the price of regular, Jeff Cole, Costco's vice president of gasoline, told the news agency. The company has not been added..
The gasoline shortage "feels like a hurricane to me, but it's the West Coast," Cole said. "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."
Wholesale (spot) gasoline in Los Angeles has surged 70 cents this week to a premium of $1.15 a gallon versus gasoline futures traded on the New York Mercantile Exchange, according to data compiled by Bloomberg. The fuel jumped to $3.9495 a 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 7.45 cents to $2.874 a gallon after falling to a 10-week low.
Spot California-blend gasoline, or Carbob, in San Francisco surged 26 cents to $1.10 a gallon over futures, the highest level since at least 2007.
Low-P, a station in Calabasas, stopped selling unleaded gasoline Tuesday and ran out of high-octane and medium-octane fuel Wednesday, John Ravi, the station's owner, told Bloomberg. He 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."
"We're going to start shutting pumps Friday," Sam Krikorian, owner of Quality Auto Repair in North Hollywood, told the news agency. "Gas is costing me almost $4.75 a gallon with taxes. There's no sense in staying open. The profit margins are so low it's not worth it."
"The squeeze is on, and people are doing desperate things," Bob van der Valk, an independent petroleum industry analyst in Terry, Montana, told Bloomberg. "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 breakeven price of almost $5 per gallon."
Costco is working on a plan to alert its members as gasoline runs out at the company's stores "so customers don't have to guess where to go," Cole said. The company will sell whatever premium gasoline it has stored for regular gasoline prices wherever supplies run out, he said.
"Costco is a membership warehouse club with a relationship based on trust," he said. "We're not delivering what the members asked us to deliver, and that's not acceptable to us. So we're doing whatever we can to fix it."
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.
The California Independent Oil Marketers Association has asked the state to expedite a waiver that would allow refiners to produce and sell winter-grade fuel, Jay McKeeman, a spokesperson for the group, told the news agency.
"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 October 31. The Reid Vapor Pressure (RVP) limits are lifted in other areas of the state as early as September 30.
The independent station owners are typically the first to run out of fuel and shut their pumps when spot prices surge because they often lack long-term contracts to buy from fuel suppliers at set prices, McKeeman said.
Jim Li said that he may stop selling gasoline at his independent station, Best Auto Care, in San Francisco. He's charging $4.59 a gallon for the fuel, "and I'm still losing money," he said.
Wholesale prices are "going up so quick that there's not even any margin to make any money at all," he told Bloomberg.