Commentary On $5 Gasoline In California -- July 29, 2015

I think everyone is aware that California has unique gasoline requirements and that refineries from outside California do not refine oil to meet California's gasoline specifications. Some Asian refineries will bring "California" gasoline to the state when it is cost-effective, which appears to be about $4.50 at today's exchange rate.

I think one could argue that, for the most part, California's gasoline supply comes from in-state refineries.

Hold that thought.

Based on newspaper reports coming out California over the past ten years or so, it appears that Californians are no more inclined to build new refineries or expand capacity any more than the rest of the country (North Dakota is somewhat of an anomaly with its new Dickinson refinery).

At the same time, there was probably no need to think about new refineries in California because the Los Angeles Times has been reporting for the past decade that coal-powered vehicles would become the norm in California, and that the few Californians driving gasoline-powered cars would be downsizing to compact and sub-compact cars. It all made any argument for more California refineries moot.

But a funny thing happened on the way to the forum.

First of all, Californians are driving more than ever.

Second, the rush to EVs seems to have peaked, another passing fad.

Third, gas-guzzling SUVs and big Ford pick-up trucks are back in vogue.

Hold all those thoughts.

Everyone, by now is quite aware that California, especially southern California, is being hit with $5 gasoline and in a news report of July 17, 2015, it did not sound like things were going to turn around very quickly.

With a crude oil glut and oil prices down to $47; with gasoline across the rest of the nation as low as $2.59, folks in California are understandably wondering why their gasoline is priced at $4.59 for regular unleaded (premium will be a lot more expensive due to the alkylate "shortage").

One of the explanations for the "shortage" of gasoline in California is the explosion at the Exxon refinery in Torrance (south Los Angeles), which is operating at 20% capacity and will continue to do for quite some time (based on that July 17, 2015, story).

I was aware of a few other reasons in addition to the Exxon explosion, but it sure sounded like that was the main reason.

I'm not so sure any more. I did not notice this until this morning, in a graph I posted yesterday. I will explain what I'm talking about but see if you see the same thing I'm seeing:

Yes, gasoline stockpiles in California are at 10-year lows this year (red line), and the averages this year have been hugging the 10-year low. However, it was actually worse last year from week 15 through week 28 (or thereabouts). 

Maybe I'm reading too much into this, but if there are no new refineries being built in California, if Californians are driving more than ever, if EVs are a passing fad (at least not growing as fast as anticipated), if Ford is having record quarters with larger SUVs and larger F-150's --

If one looks at the wild swings in the 2014 stockpiles, one gets the feeling that the situation is somewhat chaotic. 

Again, maybe I'm over-reading this, but it certainly appears last year was worse than this year -- until the Exxon refinery explosion.  If that reading is accurate, one would assume that by 2018 the situation could be much, much worse. Certainly the $5-gasoline driving season will start earlier in the spring and last longer into the autumn all things continue to trend the way they are now.

One wonders if the new refineries in Saudi Arabia (about 1 million bbl daily capacity) will be optimized to produce "California-spec" gasoline.

Note: I often misread things. I often misread graphs. I could be completely way off on this. If this information is important to you, go to the source. Do not use this site to make any investment, financial, or transportation decisions.