Journally Speaking: West Coast price volatility

Nov. 7, 2022

West Coast gasoline prices decreased drastically the first week of October following a sharp rise in prices in late September. Diesel spot prices on the West Coast also saw a decline following high September prices but to a lesser extent compared with gasoline prices. The sensitivity of pricing for both petroleum products is reflective of lower refinery output and import levels.

For the week ended Sept. 28, Los Angeles spot price for California reformulated oxygenate blend stock (CARBOB) was $4.97/gal, up $1.02/gal from the previous week, according to the US Energy Information Administration (EIA). The price fell the following week, decreasing by $1.80/gal. Inflation adjusted, markets have not seen this type of price volatility in a 1-week period since 2010.

US Gulf Coast gasoline spot markets for the same period did not experience such movements. The ability of the US Gulf Coast to receive crude oil deliveries, paired with the high volume of refineries, helps to stabilize the region’s spot prices.

Los Angeles gasoline spot prices were more unstable than the diesel spot market in October 2022. Diesel prices in other regions declined even less. For the week ended Oct. 14, Gulf Coast ultra-low sulfur diesel (ULSD) fell only 6 c/gal whereas Los Angeles’s California Air Resources Board (CARB) ULSD declined by 97 c/gal. Los Angeles CARB ULSD fell from the highest prices compared to other regional markets to the lowest as of Oct. 25.

Los Angeles gasoline prices are far more volatile than diesel prices in the area due to a higher gasoline demand. “In 2021, 2.9 times as much gasoline was consumed in the West Coast as distillate, whereas the average US ratio was 2.2 times. Another likely influence is California’s increasing use of biodiesel and renewable diesel in place of much of its diesel demand, limiting the effect of changes in petroleum diesel refining levels,” EIA said in a release Oct. 26.

The West Coast region experiences larger price fluctuations, in part due to its lack of petroleum infrastructure connections to the rest of the US. Specifications required by state regulators for diesel and gasoline fuels on the West Coast, and particularly California, differ from other blends in the US. Refineries in the region must sustain refinery runs for supply to meet demand. In the event of a refinery outage, the West Coast market may rely on importing petroleum products from Asia to meet gasoline demand. West Coast gasoline inventories fell below the 5-year range at the beginning of September. Distillate inventories, previously steady, declined below the 5-year range from end-September to mid-October. West Coast markets responded to the lower inventory and prices adjusted with the change in supply.

Refining capacity has declined since 2020 when Tesoro (Marathon) converted its 161,000 b/d Martinez, Calif., refinery to renewable diesel. West Coast refining capacity fell 9% since end-2017, below 2.7 million b/d.

Decreased refining capacity, low inventories, and decreased refinery runs due to planned maintenance spurred the large price increase in September. Gasoline and diesel spot prices fell mid-October when refinery runs returned and imports rose slightly to help with low inventory. Once refinery runs picked up and product imports rose in first-half October, Los Angeles spot prices declined swiftly.

Follow market movements like these in OGJ’s statistics section (p. 52-54) covering refining capacity, runs, supply/demand, imports, and pricing data.