News Column

Gas Prices Rocket at Pump Amid Reported Shortages

Oct. 5, 2012

Eric Wolff

gas pump monster

Refinery mishaps and California's anti-pollution regulations created a gas shortage that jacked up local gas prices this week, analysts and station owners said Thursday.

Gasoline stocks were low going into the month, as refiners converted from a summer gasoline blend, which is required by air-quality mandates, to the winter blend.

Early this week a power failure at an Exxon refinery in Torrance stopped summer blend production there, and traders, expecting a shortage, bought up stocks. Brand-name refiners funneled their remaining summer blend to their own stations, leaving independent stations in the lurch, and some have shut down.

Independents reported that refiners were demanding wholesale prices as high as $5 a gallon Thursday, and some Costco stores reportedly shut down their pumps in the San Francisco Bay Area.

The independent stations asked the state for a waiver to sell winter blend early, but state officials said they'd need time to assess the situation. The winter blend can't legally be sold until Nov. 1.

"The problem is, because California has this unique blend, we tend to run a tight margin, and then when troubles happen you can get into very high prices," said Severin Borenstein, an energy economist at the Haas School of Business at UC-Berkeley.

Overnight, the average price of a gallon of gas in the region jumped by the largest margin since before 2008, according to AAA. In San Diego County, a gallon of unleaded jumped in price from Wednesday to Thursday by 9 cents to $4.33, while in San Bernardino and Riverside counties, the price rose 9.2 cents to $4.30 a gallon.

Consumers have been beset this year by waves of price spikes caused by everything from geopolitics to refinery problems. While the overnight price increase this week was a record, the region saw higher average prices in May and February this year.

The problems in Torrance only compounded the supply squeeze from reduced production at a refinery in Richmond that's still recovering from a fire in May.

But making matters worse, California retailers can only purchase fuel from five refineries that produce the unique, low-polluting blend of gas. Thus, when the state has a shortage, retailers can't buy from outside.

The latest supply pinch has been exacerbated by its timing. Every spring and fall, California refiners must change the blend of their gasoline to reduce air pollution in summer heat and winter chill. The conversion is time-consuming, and refiners have to produce enough fuel to ship winter blend by Oct. 15 so retailers can sell it starting Nov. 1.

The power failure in Torrance left the state without a substantial part of its remaining summer-blend production, creating a panic and the price jump, according to Bob van der Valk, a fuel analyst in Terry, Mont.

In an effort to keep their stations running, brand-name refiners such as Valero and Tesoro have stopped selling extra fuel to independent station owners and to Costco.

Costco stores in the Bay Area have stopped selling gasoline, according to Jeffery Spring of the Automobile Club of Southern California. An assistant to Mario Omoss, the vice president in charge of Costco in San Diego County, said they still have gas and remain open, for now.

Meanwhile, independent station owners are struggling. Mohsen Arabshahi, owner of two stations in Oceanside and a truck stop in Barstow, said he will have to pay $5.08 if he wants to have fuel to sell on Friday. That would mean jacking up his retail price from $4.99 to $5.30 or more.

"I do that, and no one buys," he said.

He had to choose Thursday night whether to buy expensive fuel, or simply close down for a week or two until market conditions settle down.

Homeland Petroleum, which has stations in Vista and San Diego, stopped selling gas Thursday because prices were too high to keep it profitable.

The California Independent Oil Marketers Association, a trade group in Sacramento, petitioned the California Air Resources Board for a variance that would allow state retailers to sell the winter blend before Nov. 1.

In making its decision, the board consults with the California Energy Commission, because the commission tracks supplies, said Dave Clegern, a spokesman for the board.

Alison apRoberts, a spokeswoman for the commission, said the commission is monitoring the situation.

"It was 105 degrees in Sacramento this week," she said, suggesting that the summer fuel blend was still necessary to hold down air pollution. "There's other things besides price that need to be considered if such a waiver were granted."

Neither the Energy Commission nor the Air Resources Board had a timeline for making a decision on the waiver request.

If the waiver is granted, there would be almost immediate price relief, as stations could sell winter blend that had already been refined, van der Valk said.

Prices are likely to get higher for at least the next few days and well into next week, analysts said. There won't be relief from high prices until either the Torrance refinery gets production under way again, there's a waiver, or Nov. 1 rolls around.

For Arabshahi, the delay from regulators was the most frustrating.

"California does this to itself!" he said.



Source: (c) 2012 the North County Times (Escondido, Calif.) Distributed by MCT Information Services


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