An August 6 fire at Chevron's 245,300-barrel-per-day (bbl/d) Richmond, California refinery pushed wholesale prices higher on the West Coast. On news of the fire, Los Angeles spot prices increased more than 32 cents per gallon from $2.88 per gallon on August 6 to $3.21 per gallon on August 7. However, reports that gasoline-producing units at the Richmond refinery could possibly continue to run, along with market slack due to recent export flow from the West Coast, tempered increases in the Los Angeles spot market. By week's end, prices in Los Angeles had shed about 7 cents per gallon from the peak on August 7. Retail gasoline prices in California jumped 23 cents per gallon from August 6 to hit $4.10 per gallon on August 13.
Trade press reports currently indicate the crude distillation unit at the refinery could be down four to six months. The impact on gasoline prices will depend on the extent to which the refinery's secondary gasoline-producing units continue to operate, the flexibility of other West Coast refineries (including Chevron's El Segundo refinery) to produce additional gasoline, and the availability of gasoline supplies from outside the region.
Absent additional refinery outages, and once current outages are addressed, EIA expects average retail gasoline prices to ease through the end of 2012. In its August Short-Term Energy Outlook, EIA projects the average U.S. retail gasoline price will be $3.48 per gallon in September and continue to fall, reaching $3.25 per gallon by the end of the year. With Brent projected to fall from its current price level to average about $102 per barrel over the last four months of the year, lower crude oil costs are expected to pass through to retail gasoline prices. However, regional disparities in gasoline prices are expected to remain, with December retail prices expected to range between an average of $3.52 per gallon on the West Coast (PADD 5) and $3.09 per gallon on the Gulf Coast (PADD 3).
Forecasting prices involves a high degree of uncertainty. The price structure of futures and options traded for New York Harbor Reformulated Blendstock for Oxygenate Blending (RBOB) gasoline provides an indication of the uncertainty expected by futures market participants. The November 2012 RBOB futures contract averaged $2.56 per gallon for the five trading days ending August 2 and has a probability of exceeding $2.80 per gallon (equivalent to a retail price of about $3.50 per gallon) at expiration of approximately 26 percent (Figure 2). The same contract as of the five trading days ending June 1 had a 23 percent probability of exceeding a retail price of $3.50 per gallon.