LOS ANGELES -- California usually has among the highest wholesale gasoline prices in the country. This past week, it had the lowest.
As of last week, CARBOB (California Reformulated Gasoline Blendstock for Oxygenate Blending) was trading for less than $1.20 per gallon.
“I don’t think I’ve ever seen CARBOB the cheapest fuel in the land,” Patrick DeHaan, senior petroleum analyst for Boston-based GasBuddy, told CSP Daily News. “[It is] very, very rare.”
Typically, CARBOB is among the highest-priced fuel blends in the country because of its specifications and the fact that California is a “petro island,” with strict regulatory requirements for fuel and a dependence on its own refineries for supply.
But swelling inventories, imports and a smooth stretch of operations for California’s oft-troubled refineries have helped push wholesale spot prices in Los Angeles down by more than 60 cents since the middle of June, according to Reuters.
DeHaan of GasBuddy said stocks of CARBOB are at “impressive levels,” or 12% higher than a week ago, and 9% higher than this same time last year. As these inventories have swelled, spot gasoline prices for CARBOB have plummeted.
“Just vs. a week ago, wholesale prices are down nearly 20 cents per gallon, and down some 50 cents in the last month,” DeHaan said.
The California market is especially responsive to supply changes, said Tom Kloza, global head of energy analysis for OPIS, Wall, N.J. He described California as “the poster state for the ills of just-in-time inventory.” This dynamic is playing out right now.
“A very shallow inventory system means that tanks are quick to empty (and provoke price spikes) but also quick to fill (and provoke huge swoons),” Kloza told CSP Daily News. “We’re experiencing the latter case at the moment.”
He expects California’s spot gasoline market won’t stay the cheapest for long and considers this current state as “an aberration” that will end as some refiners trim runs.
While wholesale prices have dropped like a rock, retail prices have been floating down like a feather, which is a typical pattern regardless of the market. But for California, the difference in the pace of price declines has been even more pronounced, with the spread growing to about $1.50 per gallon for the week of July 25, according to Reuters, or about 40 cents per gallon (CPG) wider than the spread in New York.
California average retail gasoline prices have fallen 15 CPG over the past month, according to GasBuddy, “meaning margins are fat and competition will continue pushing California’s retail prices lower,” said DeHaan. He expects California’s state average—sitting around $2.76 per gallon as of July 29—to fall to $2.50 or maybe even lower, assuming conditions remain the same. In fact, a Pilot travel center in Sacramento had a regular retail price only 7 cents away from $1.99, according to GasBuddy.
According to OPIS, the lowest rack prices in California are at about $1.39 per gallon, including fees associated with the state’s Low Carbon Fuel Standard. Taxes add another 60 CPG. There may be a few below-$2 street prices in California, most likely at “off-price” retailers such as Costco, but “I don’t think it will be a summer and autumn fixture,” said Kloza.
While this year has been excellent for fuel margins, especially for distributors and c-store retailers in California, “things can change very quickly,” Kloza said. “Don’t be surprised to see some gasoline cargos leave the West Coast for foreign destinations, which would provoke a rebound in what looks to me like an oversold market.”
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