California gasoline reels from another big refinery fire

They like sequels in California.

Maybe that explains why, for a second time this year, a fire has taken out a key crude distillation unit at a large US West Coast refinery, the West Coast's third-biggest. And why, for a second time this year, spot gasoline price swings reached into record territory, and Golden State pump prices threaten $4/gal.

It's not exactly Harry Potter, but it could take some magic to bring down the spread between West Coast gasoline and the underlying NYMEX RBOB futures contract.

The main California-specific grade known as Los Angeles CARBOB rose August 7 by 24.50 cents relative to NYMEX September RBOB futures, up to plus 26 cents/gal due to the previous day's fire at Chevron's 243,000 b/d Richmond refinery near San Francisco. That's equal to a $10/b jump, or nearly 8% of the outright price.

That boost tied for the third-highest in the differential since assessments began in 2005, Platts data show. But it comes on the heels of a record 28.75-cent gain on February 21, the first trading day after a crude unit fire at BP's 225,000 b/d Cherry Point refinery in Washington.

Cherry Point decided to perform maintenance on other units rather than run them off feedstocks for the three months it took to repair the CDU, the heart of a refinery that processes crude to feed into other units.

Unlike Cherry Point, the plotline at Richmond looks like it may just center on the crude unit being out for about four months, several West Coast trading sources said.

"I guess the hard part is trying to guess how much California and the EPA gets involved," added Carl Larry, president of Oil Outlooks and Opinions. "Mechanically, probably four months; red tape could add another two."

Meanwhile, the outage has disrupted the picture for trading patterns in the region. Traders question whether Chevron can obtain enough feedstock to keep the plant running even at reduced rates, but it just received a 500,000-barrel cargo of feedstock from the Mediterranean and may have another arriving soon, according to sources and Platts vessel-tracking software cTrack.

Los Angeles jet fuel and diesel prices each rose about 12 cents on a differential basis, turning the West Coast into an import market for the former and stalling a brisk export market for the latter. Traders also will be gauging the effect of another big refinery news: the August 13 sale of BP's 265,000 b/d refinery in Carson near Los Angeles to Tesoro.

"The Tesoro purchase also took a lot of people by surprise," Larry said. "I'm hearing from a lot of people that the biggest hurdle is federal regulation. It puts (Tesoro) at nearly 25% of the state's refinery production." (The state's Attorney General is going to look at this issue.)

But gasoline is the main attraction for California drivers. Platts assessed Los Angeles CARBOB as high as plus 29.25 cents/gal on the differential and $3.30/gal on the flat price August 9. Pump prices tend to run 70 cents higher due to taxes and distribution costs.

The US Energy Information Administration said the West Coast averaged $3.948/gal on August 13, the nation's highest after a 19-cent surge on the week.

"That's going to zoom retail up over $4 again," one West Coast trader said, noting retail prices hit $4.50/gal after Cherry Point's fire. "Recent history has said every time we get above $4, demand just drops off the cliff."

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