EIA Reports

U.S. DEPARTMENT OF ENERGY
WASHINGTON DC 20585

FOR IMMEDIATE RELEASE
April 8, 1999

Refinery Problems Push California Gasoline and Diesel Fuel
Prices Up Sharply, But Relief May Be In Sight

While crude oil and petroleum product prices have risen worldwide since mid-February, California product markets have seen even more rapid price increases, largely due to problems at several San Francisco-area refineries. According to the Energy Information Administration, average California retail prices for regular gasoline and diesel fuel have risen 48.7 and 35.1 cents per gallon, respectively, from their February lows, while equivalent U.S. average prices for these fuels have increased 21.1 and 12.2 cents per gallon.

Wholesale prices in California have jumped even more rapidly than retail prices, implying that further increases could yet be seen at the pump. However, one of the affected refinery units has been restarted, and additional product shipments are en route from the Gulf of Mexico and elsewhere, suggesting that the worst of the supply problems may be over.

The recent rise in California wholesale gasoline and diesel fuel prices occurred in several stages. From mid- to late February, California spot prices began to increase, along with those in other U.S. markets, in response to rising crude oil prices. Following a fatal fire at the Tosco refinery in Avon, California, on February 23, and the announcement that the refinery would be shut down for up to 3 months, spot prices for California Air Resources Board (CARB) reformulated gasoline (RFG) jumped by 12 to 18 cents per gallon in a week before easing slightly, while CARB diesel prices shot up as much as 23 cents. When Exxon announced on March 19 the shutdown of a fluid catalytic cracking unit at its Benicia refinery, precautionary buying pushed RFG spot prices up another 20 to 30 cents, and diesel prices up 8 to 9 cents. Finally, when a hydrocracker at Chevron's Richmond, California refinery exploded on March 25, spot gasoline and diesel fuel prices jumped as much as another 19 and 6 cents per gallon, respectively.

Wholesale prices reached a peak, at least temporarily, at the end of March, and began to decline following Exxon's announced restarting of its Benicia cat cracker on April 1. However, because all of the previous wholesale price increases had not yet carried through to retail prices, and because gasoline prices normally rise due to seasonal demand pressures in the spring, some further increase in California retail gasoline prices would not be unexpected.

These sudden increases in California gasoline and diesel fuel prices are unusual, but unfortunately not unprecedented, and again point out the fragile supply/demand balance in that State. California is home to over 20 operating refineries, with total distillation capacity of about 2 million barrels per day, and when all facilities are in full operation, local supplies are more than adequate. However, the unplanned full or partial shutdown of one or more major refineries, especially during a high-demand period, can result in local supply shortfalls and price spikes. The logistical separation of the West Coast from other refining centers makes resupply from outside the region an expensive and time-consuming option. Additionally, due to California's unique specifications for both reformulated gasoline and low-sulfur diesel fuel, standard products used in other regions cannot be substituted, and only a limited number of suppliers outside the State are able to readily produce CARB-specification products.

Gasoline inventories in Petroleum Administration for Defense District (PADD) 5, the West Coast region, dropped rapidly from 31.2 million barrels at the end of January 1999 to an estimated 23.9 million barrels on March 26, their lowest level since 1982, before rising slightly in the week ending April 2. More specifically, PADD 5 RFG stocks (essentially CARB gasoline) have dropped to 9.6 million barrels, a level they have been below only once since CARB RFG implementation in 1996. PADD 5 diesel fuel stocks do not appear to indicate any unusual shortfall at this time, but it should be noted that specific data on California inventories are not available.

In addition to repairing the damaged refinery units, help for California's petroleum product supply balance can come from increased production at other area refineries, or from shipments into the region from refineries elsewhere. The large current price differentials between California and other refining centers, specifically the U.S. Gulf Coast, create a powerful incentive to ship products long distances. Trade press reports indicate that a number of gasoline cargoes have already left Gulf Coast and Caribbean refineries bound for California via the Panama Canal. Also, EIA data show that other refineries in California produced gasoline in March at levels significantly higher than a year ago, helping to compensate for lower production by the refineries experiencing difficulties.

EIA Program Contact: John Cook, 202/586-5986
EIA Press Contact: National Energy Information Center, 202/586-8800, infoctr@eia.doe.gov

EIA-99-08

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