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California Gasoline Hits Record After Winter-Grade Shift

Gasoline prices at the pump in California rose to a record overnight even as Governor Jerry Brown directed state regulators to allow refineries to produce more supply by shifting to winter-grade fuel.

Regular gasoline at the pump climbed to an all-time peak of $4.671 a gallon, according to data published today by AAA, the nation’s largest motoring organization. That’s up from the previous record of $4.668 reported at the same time yesterday. Prices jumped 50 cents last week as refineries reduced output and Chevron Corp. (CVX) shut a pipeline because of contamination.

The California Air Resources Board granted refineries permission on Oct. 7 to make an early shift to the winter blend, typically not sold until after Oct. 31. The switch, which allows refiners to produce more gasoline by adding butane to the mix, will take about a week to ease gas prices, said Avery Ash, an AAA spokesman based in Washington.

“It’s great for alleviating pressure that’s been building up, but the relief isn’t going to be felt overnight,” Ash said by phone today. “You’ve got stations that have sold up at higher prices because they purchased more expensive products last week. That gasoline has to work its way through the system before the cheaper stuff gets to consumers.”

Gasoline station owners in the Los Angeles area including Costco Wholesale Corp. (COST) began to shut pumps last week as oil refineries started rationing supplies. Valero Energy Corp. (VLO) and Exxon Mobil Corp. (XOM) were among companies to allocate fuel to customers.

‘Another Week’

Wholesale prices for California-blend gasoline, or Carbob, on the spot market, rose 29.84 cents to $3.5415 a gallon in Los Angeles, data compiled by Bloomberg show. The same 85.5-octane blend gained 29.84 cents to $3.4615 in San Francisco.

“We’re probably close to reaching a peak,” Tom Robinson, president of Robinson Oil Corp., said by phone from Santa Clara, California today. “The question is when and how fast will prices come down, especially with the supply constraint.”

Prices began to skyrocket after Exxon Mobil’s 150,000- barrel-a-day refinery in Torrance, near Los Angeles, reduced production Oct. 1 after a power failure. That followed a fire that knocked out a crude-processing unit at Chevron’s plant in Richmond, near San Francisco, in August and the shutdown of a Chevron pipeline that delivers crude to Northern California because of contamination.

“California has been paying a bunch more because they haven’t had the major refineries like Richmond and Torrance,” Bob van der Valk, an independent petroleum industry analyst in Terry, Montana, said by phone today. “The bottom line is that prices aren’t going to come down in just a day or even a few days. We won’t see the agony ease for another week.”

Valero Refineries

The state’s gasoline markets are particularly susceptible when refineries have outages because California is mostly cut off from the oil-product pipelines spanning the rest of the country, according to the U.S. Energy Information Administration. Gasoline in California also has its own blending requirements to reduce smog and it’s difficult to import from other states.

Governor Brown’s winter-grade decision allow refiners to produce as much as 10 percent more gasoline, according to David Hackett, the president of independent fuel consultant Stillwater Associates in Irvine, California.

“It’s like creating another refinery overnight,” Hackett said by phone yesterday. “When it comes to price, people will see a difference tomorrow.”

Valero’s Benicia and Wilmington refineries have begun producing winter-grade gasoline, Bill Day, a San Antonio-based spokesman for the company, said in an e-mail today.

Gasoline stockpiles in California dropped 122,000 barrels, or 2.1 percent, to 5.77 million in the week ended Sept. 28, according to the most recent data compiled by the state Energy Commission. That’s down 10 percent from a year ago and the lowest inventory level for that period since 1999.

To contact the reporters on this story: Dan Murtaugh in Houston at dmurtaugh@bloomberg.net; Christine Harvey in New York at charvey32@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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