Winter Blend Coming to California's Rescue

Gas prices fall 12% after governor directs CARB to allow early fuel transition

Jerry Brown

SACRAMENTO. Calif. -- Governor Edmund G. Brown Jr. on Monday directed the California Air Resources Board (CARB) to take emergency steps to increase the state's gasoline supply and bring down fuel prices. The governor directed the board to immediately allow oil refineries to make an early transition to winter-blend gasoline, typically not sold until after October 31.

California wholesale gasoline prices fell up to 12% after the announcement, said a Dow Jones report.

Wholesale (spot) gasoline prices in the state were $3.35 a gallon in Los Angeles, down 12% from Friday's $3.805 and down 18% from the recent peak of $4.095 Thursday. Prices have soared over the last few weeks due to a series of refinery disruptions across the region.

"Gas prices in California have risen to their highest levels ever, with unacceptable cost impacts on consumers and small businesses," said Brown. "I am directing [CARB] to immediately take whatever steps are necessary to allow an early transition to winter-blend gasoline."

Allowing an early transition to winter-blend gasoline could increase California's fuel supply by an estimated 8% to 10% with only negligible air quality effects.

California gasoline prices have skyrocketed over the past week due to a tightening of fuel supplies caused by shutdowns at Tesoro and Exxon refineries. The Exxon refinery came back online Friday and Tesoro is scheduled to resume production early next week. Combined, these actions are expected to stabilize and reduce fuel prices.

(See Related Content below for previous CSP Daily News coverage.)

"We estimate this will result in an increase of up to 10% in fuel supplies in California," CARB spokesperson Stanley Young told the news agency.

Click here to view CARB's full statement on Brown's order.

Usually, a change in the price of wholesale gasoline takes days to ripple through to the price at the pumps. But retail gasoline prices already are sinking in the state. In Los Angeles, retail gasoline was selling for an average of $ 4.689 a gallon, down 0.2 cents from Sunday, according to the report, citing San Francisco retail gasoline was selling on average for $4.708 a gallon, down 2.3 cents from Sunday, said GasBuddy.

The winter blend also is cheaper to make and should allow refiners to immediately cut gasoline prices by as much as 50 cents a gallon, Sam Margolin, analyst at Dahlman Rose & Co., told Dow Jones.

"It's not going to bring prices back to where they were," hesaid, "but it should bring up to 50 cents of instant relief."

Switching blends will help the situation, but the state is still vulnerable to the problems of supply crunch, Richard Hastings, macroeconomic strategist for Global Hunter Securities, told Dow Jones.

Regional refineries are near the limits of their capacity and disruptions can quickly cause shortages--and the state's rules on blends make imports difficult, traders and analysts said.

"It will be helpful," Hastings said of the blend switch. But resolving the gasoline crunch "will be a little slower and little less effective than some observers think. You still have to solve the problem of delivery and still have to produce it."

Separately, U.S. Senator Dianne Feinstein (D-Calif.) has sent a second letter to Jon Leibowitz, chairman of the Federal Trade Commission (FTC), asking for an immediate investigation to protect California's consumers.

"California commuters are facing the highest gas prices and the longest commutes in the country," Feinstein said. "Paying hundreds of dollars to fill your tank every time you go to the pump is untenable, particularly because it does not appear the price spike and supply disruption are related to supply and demand."

In her letter, Feinstein added: "California's consumers are all too familiar with energy price spikes which cannot be explained by market fundamentals, and which turn out years later to have been the result of malicious and manipulative trading activity. It is with this history in mind that I call on the FTC to act immediately and aggressively to protect California's consumers."

Click here to read the full text of her letter.