After refinery fire, prepare to spend more at the gas pump

San Diego Union-Tribune

March 20, 2019 4:34 PM PT

With drivers already spending a little more for gasoline due to gradual increases in the price of oil, a recent refinery fire in the Los Angeles area will likely lead to even more pain at the pump.

Fuel experts anticipate prices moving up about 10 cents a gallon after Phillips 66 shut down a crude unit at its refinery in Los Angeles because of a fire that broke out last Friday night.

Officials with the oil company have not said how long the unit will remain offline but Patrick DeHaan, head of petroleum analysis at GasBuddy, a tech company that helps motorists find the cheapest places to buy gasoline, said the fire is not nearly as devastating as the 2015 explosion in Torrance or the 2012 refinery fire in Richmond that resulted in extended periods of supply constraints.

“This is on the lower side of impact, but an impact nonetheless will be coming in a matter of the upcoming days,” DeHaan said. “It’s not something you’re going to wake up tomorrow and get sticker shock. It’s going to be a slow, gradual uptick.”

David Hackett, president of Stillwater Associates, a transportation energy consulting company in Irvine, said gasoline prices on the spot market in Los Angeles have gone up 10 cents since the days before the incident affecting the linked Carson and Wilmington facilities about 15 miles southeast of the Los Angeles International Airport.

“The spot market is the point at which gasoline first trades,” Hackett said. “And if there is an unplanned outage — and this was clearly unplanned — then people get nervous and make sure they’ve got coverage for their contracts and go into the spot market to start buying. And when they start buying, of course the prices go up.”

How long it will take for the expected price bump to dissipate will depend on how quickly the damaged area of the refinery gets back up and running, Hackett said.

“Generally, prices go up faster than they come down,” Hackett said. “That’s because retailers want to make sure they’re not losing money while the prices go up quickly. And then when the spot market comes down, (retailers are) oftentimes reluctant to go down.”

In the parlance of the fuels industry, it’s called the “rockets and feathers effect.”

“The price rockets up and then floats down,” Hackett said.

Phillips 66 representatives did not return an email from the Union-Tribune asking for an estimated date of resumption of all work at the site and additional details of the accident.

Even before last Friday’s fire, gasoline prices have been creeping up — not just in California but across the country — as oil prices have risen in recent weeks.

Last Christmas, the price of West Texas Intermediate — the benchmark price of domestic crude — was $42.53. The trading day closed Wednesday with WTI at $59.83.

Promises of cooperation between Russia and the Organization of Petroleum Exporting Countries, or OPEC, to try to reduce production have also put upward pressure on crude prices. So have collapsing production numbers in Venezuela, where the state-run oil company has cratered.

According to the U.S. Energy Information Administration, the average price of regular gasoline in the U.S. went up 8 cents a gallon last week. In California, prices went up 4 cents a gallon.

Last month, the refiners in California began the switch from the relatively easy-to-make winter blend of gasoline to the more difficult-to-produce summer blend. Summer fuel grades are more expensive because of the oxygenates required in making the fuel and the fact that refineries have to briefly shut down before processing it.

But fuel experts say the transition to summer-blended fuel will not factor into a price increase in the near term because by this time of year, gas stations have rid themselves of what’s left of their stocks of winter-blended gasoline.

However, in four months, a second iteration of the state gas tax — passed in 2017 by the Legislature and signed into law by then-Gov. Jerry Brown — will go into effect.

Gas prices went up 12 cents a gallon in November 2017. In July, the second half of the tax will kick in — adding 5.6 cents per gallon to the tab for motorists.

All the more reason, DeHaan said, to hunt for lower prices.

“I see stations in Oceanside and Chula Vista at $3.09 a gallon,” DeHaan said. “But there are a lot of stations in Carlsbad and around the area that are a dollar a gallon more. There’s a lot of volatility in the springtime. Some stations raise their prices quicker than others and I would just encourage motorists to keep their money in their wallets and shop around for lower prices.”

According to GasBuddy, the average price for regular gas in California is $3.36 a gallon. San Diego’s average price is also $3.36 a gallon.

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