By Rob Nikolewski, THE SAN DIEGO UNION-TRIBUNE
September 30, 2019
First, it was a missile attack in Saudi Arabia. Now, it’s another spate of refinery closures. Regardless of the reasons, San Diego motorists are being greeted by an unwelcome sight when they pull into the service station: The return of $4-a-gallon gasoline.
“I know it’s going to be painful for many folks to hear, but it just continues to get worse,” said Patrick DeHaan, head of petroleum analysis at GasBuddy, a tech company that helps drivers find the cheapest places to fill up.
The average price for regular gas in San Diego has hit $4.06 a gallon, a rise of 43 cents in the space of little more than two weeks by GasBuddy’s accounting.
And DeHaan said the wholesale price of gasoline for Southern California is still moving up, which means drivers should expect prices to keep climbing, by his estimation, about 20 to 25 cents more per gallon in the next week.
“I think it’s definite that within a matter of days, San Diego will be looking at the highest prices we’ve seen since 2015 when they were about $4.23 (a gallon) and it’s possible since 2014 when you saw a price of $4.29 as an average,” DeHaan said.
The spike began in mid-September after officials in Saudi Arabia said 18 drones and seven cruise missiles were launched at two of the kingdom’s key crude oil installations that accounted for about 5 percent of the world’s daily production of crude oil. The Saudis have blamed Iran for the attack; Iran denies any involvement.
California prices are more prone to a disruption overseas because the Golden State has no direct pipeline connections to receive oil from Texas or the Bakken shale formation in North Dakota.
According to the California Energy Commission, 57.5 percent of crude oil supply to California refineries in 2018 came from foreign sources and Saudi Arabia accounted for more than one-third of that (134.8 million barrels last year).
West Coast markets also have to compete with Asian markets for Saudi oil.
DeHaan said about 15 cents of the increase seen at the pump in San Diego can be traced to the attack.
But the biggest factor, De Haan said, is due to four shutdowns in refineries across the state — two in Northern California (one in the town of Rodeo and the other in Benicia) and two in Southern California (in El Segundo and Torrance).
The closures come on top of regular maintenance as refineries make the annual transition from “summer blend” gasoline to “winter blend.” The timing is particularly bad for Southern California drivers, DeHaan said, because the move from one blend to another happens later than in other our regions.
“Nearly the entire country has moved back to cheaper winter gas,” DeHaan said. “But Southern California doesn’t make the switch until Nov. 1, so you’re stuck with this very stringent, difficult-to-make gasoline.”
And with the backup in higher wholesale prices still to be reflected in retail prices, DeHaan said the full effect of the increases has not been seen yet.
“By seven days from now, (stations) should have passed most of it along,” he said, before some price relief is felt — perhaps from suppliers based in Asia.
“Prices are so high, I’m sure anyone that can produce anything that could be utilized in California is loading up as many boatloads as they can and sending it,” DeHaan said. “That is going to inspire a significant amount of inflows to California but, like I said, they’ll take time.”
Last week, the energy commission reported inventories for unleaded gasoline in the state were down 21 percent from the week prior. AAA of Southern California reported the Oil Price Information Service said Southern California received no imported gasoline in the past week.
California has the nation’s highest average price for a gallon of regular gas — $4.03, compared to $2.65 nationally, according to AAA.
The Western States Petroleum Association, a trade group representing oil companies in five states including California, said the “primary driver” in the price of gasoline and diesel “is the dynamics of supply and demand of crude oil.”
“Moreover, unforeseen events — such as storms, outages, etc. — can have significant impacts,” said the group’s president, Catherine Reheis-Boyd, in an email. “In addition, state-specific factors such as California’s mandated fuel blend requirements, increasingly high state taxes and regulations such as cap-and-trade and the Low Carbon Fuel Standard impact fluctuations in the price of gasoline and diesel.”
“Our research shows that whenever there are price spikes like this, oil refiners make more money in California,” Court said. “So there may be legitimate reasons in terms of a refinery going down to raise gas prices but when prices are already so much higher than the rest of America, it begs the question why.”
At the behest of Gov. Gavin Newsom, the Energy Commission is investigating an increase in gasoline prices of 17 cents to 34 cents a gallon dating from 2015 that has not seemed to go away. A full report to Newsom is due Oct. 15 and may include a determination into whether an inquiry into causes such as “market manipulation” is warranted.