Why California's Emergency Action To End Its Gas Price Nightmare Won't Work

california gas station

Many have said California’s gas prices have screamed higher as a result of the state’s extended use of more-expensive summer blend gasoline.

EPA requirements prevent gas stations from selling a cheaper winter blend until November.

But there are signs that switching early to winter blend, as Gov. Jerry Brown has requested, will have little to no impact.

Citi energy analyst Tim Evans told us via e-mail that the switch won’t affect the fundamental problem: refinery outages.

Given the larger issues involved, its really not possible to assign a number on the early switch to winter grade gasoline, but I think the impact will be small. The switch does give refiners some increased flexibility in terms of managing their inventories — it’s one less thing to worry about — but it won’t mean more barrels of crude oil converted into fuel, which is the primary issue.

Chevron said today that they won’t be able to restart the crude unit at the 245,000 bpd Richmond refinery until December and so I don’t see this problem going away so quickly.

AAA’s Michael Green told us something similar, saying there was no way to know when relief from the switch would kick in.

It seems more likely that a seasonal demand drop will have a bigger impact. 

When gas prices hit an all-time high in 2008, analysts cautioned the effect of switching would be minimal.

“If there is any price effect, it will be dwarfed or masked by the changes caused by the drop in crude oil prices and a drop in gasoline demand,” EIA spokesman Jonathan Cogan told the AP at the time.

Refinery outages and regulations are just two of the many factors that affect gas prices.

OPEC Production

OPEC produces 40 per cent of the world's oil. If there are any headlines coming out any of these 12 countries, the price of oil will be affected.

Source: API

Non-OPEC production

Shut-ins of off-shore platforms in the Gulf, which usually occur in the wake of hurricanes, can cause prices to spike.

Source: API

Emerging Market Demand

Emerging market oil demand growth, driven by China, will soak up global supply growth, keeping the supply-demand balance tight and oil prices elevated over the next five years. A hard landing by China poses the biggest downside risk to EM oil demand growth.

Sources: Roubini, API

Refining Costs

This is what's causing many of the headaches in California. The state is required to sell a more expensive 'summer blend' gasoline through the rest of October, although gas stations are now applying for waivers. Other states lack such requirements (though some cities have them).

The state has also experienced refinery outages, though there are disputes as to what has caused them.

Sources: EIA, State of California, API


The markets now tend to jump on any headlines out of the Middle East, especially from Iran. Even the thought of supply disruptions could cause gas prices to go haywire.

Source: API


Yet another element affecting California.Some are attributing the state's refinery outages to unseasonably warm weather, which may have caused power outages. Most believe unseasonably warm weather is responsible for the refinery outages California is experiencing.

Even without that anomaly, the general rule of thumb is mild weather = lower prices, extreme weather = higher prices.

Sources: API, CNN

Exchange Rates

Countries with inflating currencies -- including the U.S. -- have seen energy prices rise more rapidly, in local terms, than ones without them.

Sources: API, Google Finance

Your State

Retail gasoline prices tend to be higher the farther it is sold from the source of supply: ports, refineries, and pipeline and blending terminals. About 62% of the crude oil processed by U.S. refineries in 2010 was imported, with most transported by ocean tankers.

Sources: EIA, API


Gas stations who buy on spot markets usually work through a broker who will charge various commissions.

Sources: EIA, API


The nationwide average tax on gasoline is $0.493, up slightly from January. The federal tax on gasoline is 18.4 cents per gallon. The average state gasoline excise tax is 20.9, unchanged from January 2012.

Sources: EIA, API

Speculation and Hedging

The most controversial of all factors. The UN just published a report alleging crude oil markets have become overly financialized and are no longer determined by underlying factors.

Sources: API, AP, Politifact

For more on how stuff that happens around the world hits your wallet...

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