On Monday, October 8, the average retail price of regular gasoline in California reached $4.66 per gallon, driving the West Coast average price to $4.41 per gallon, the highest weekly price since the summer of 2008. The sharp price increase came after a combination of refinery and logistical problems stressed a market that had been operating with persistently low inventories throughout much of 2012. The higher prices last week were limited geographically to California, and wholesale prices have already declined sharply following a waiver from the Governor of California that allowed an early switch to winter-grade fuel and as disrupted refinery operations returned to normal.
As discussed in the August 22 edition of This Week In Petroleum, due to a lack of significant pipeline connections to other regions of the United States, and because of its distance from the actively traded physical product markets of the Atlantic Basin, supply disruptions on the West Coast often have a larger impact than disruptions in the eastern part of the country. Prior to the recent price increases, gasoline markets on the West Coast have been periodically tight during 2012. A series of refinery outages since February have led to persistently low gasoline inventories (Figure 1). Gasoline supply issues began with a fire at BP's Cherry Point, Washington, refinery, which caused a three-month shutdown. Market pressures intensified after BP's Carson City, California, refinery underwent planned maintenance in March. These outages, combined with other smaller market disruptions, contributed to sharp inventory draws through the spring. West Coast gasoline inventories fell to 24.1 million barrels by May 18, more than 5 million barrels (about 20 percent) below the five-year average level for that time of year, making it the lowest level in more than ten years and the second lowest level since the beginning of the data series in January 1990.
Gasoline inventories rose from late May into June as refinery issues abated and as higher prices attracted incremental supplies from outside the region. Despite the increase, inventories remained below their seasonally typical five-year range for most of the summer. A crude unit fire at Chevron's refinery in Richmond, California, in early August put additional stress on supply, and press reports have indicated that the Richmond crude unit will be out of service through 2012. Tesoro's Golden Eagle, California refinery, undertook planned maintenance in September, further pressuring West Coast markets. By the end of September, gasoline inventories in the region were again below the seasonally typical five-year range.