On October 1, ExxonMobil's Torrance refinery experienced a sudden and unexpected loss of power from the utility grid that resulted in a shutdown. With inventories already low, concerns about the adequacy of gasoline supplies drove wholesale prices higher on the West Coast during the first week of October (Figure 2). As of the market close on September 28, California specification reformulated blendstock for oxygenate blending (CARBOB) was trading at $3.37 per gallon in Los Angeles, and had averaged a 6-cent-per-gallon premium to RBOB in New York Harbor over the previous ten trading days. By October 4, CARBOB in Los Angeles had reached $4.39 per gallon, a $1.16 premium to New York Harbor RBOB. CARBOB has historically traded at a premium of 10-15 cents per gallon to New York RBOB. This premium is mostly due to the additional cost to produce CARBOB; it is also volatile and depends on other factors such as transportation costs and market conditions.
Unlike other disruptions on the West Coast this year, which affected prices in Washington, Oregon, and California, the impact of last week's disruption was generally limited to California. News that the Torrance refinery had returned to normal operations on Friday, October 5, calmed wholesale prices. More importantly, on October 7, the California Air Resources Board allowed for an early switch from summer- to winter-grade gasoline. Typically, summer-grade gasoline must be supplied through the end of October. The waiver allowed more components that are produced at West Coast refineries to be blended into finished gasoline, immediately alleviating supply tightness. In addition, winter-grade gasoline that meets California specifications is more available globally than the summer-grade equivalent. Summer-grade California gasoline is only produced at a limited number of refineries outside of California, and those refineries are significantly distant, including facilities in Asia and Canada's East Coast. By October 16, wholesale CARBOB prices in Los Angeles had fallen to $2.92 per gallon, a one-cent-per-gallon discount to New York Harbor RBOB.
Retail gasoline prices in California are beginning to follow wholesale prices downward. On October 15, the U.S. Energy Information Administration (EIA) reported the average price for regular retail gasoline was $4.62 per gallon, a four-cent-per-gallon decrease from the previous week. Prices for the West Coast as a whole were $4.39 per gallon. Through the end of 2012, EIA's October Short-Term Energy Outlook projects prices to continue to ease on the West Coast, falling from their current level to average $3.76 per gallon in December 2012.