In a tight spot, trading in Los Angeles gasoline soars past $4/gallon

Los Angeles gasoline prices jumped past $4 a gallon October 3 for the first time ever. And that's just in the spot market, which is typically 70 cents cheaper than pump prices.

Refiners actively bought 25,000-barrel lots while their refineries suffered issues in 100-degree California heat. Pipeline issues, export demand, low inventories and an upcoming change to winter-grade specifications also played into the boost.

As one trader put it, values were at hurricane levels without a hurricane. Said another: "This market is totally stressful."

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Platts assessed Los Angeles CARBOB, the main California-specific gasoline, at $4.0439/gal October 3, a record since its 2004 introduction.

Gasoline traders, however, make their living on a differential to the NYMEX RBOB futures contract, which settled 6.97 cents lower at $2.7995/gal and was assessed at 3:15 p.m. EDT by Platts at $2.7939/gal.

That differential was plus 50 cents/gal Friday, September 28, but spiked 20 cents Monday after ExxonMobil's gasoline-centric Los Angeles refinery suffered a power failure. It jumped another 20 cents Tuesday and then 35 cents Wednesday to plus $1.25/gal, or $52.50 a barrel.

In late trading October 3, the differential traded at plus $1.40/gal and plus $1.45/gal, several sources said.

"It's really amazing that it's going this far this fast," said Carl Larry, president of Oil Outlooks and Opinions. "It looks like it's either a bad sign for a refinery or a good sign for demand."

The previous record differential for Los Angeles CARBOB before the week was NYMEX RBOB futures plus 72 cents/gal on November 10, 2008, according to Platts data. The previous record outright price was $3.878/gal on June 6.

Pump prices typically run at least 70 cents over the spot market once taxes and distribution costs are accounted for, although often at a lag. The West Coast showed an average retail prices for regular gasoline October 1 at $4.081/gal, the US Energy Information Administration said. A daily survey by the AAA motor club put California retail averages at $4.23/gal on Wednesday.

Market sources said California refiners already suffering from glitches have been buying since ExxonMobil's Torrance refinery outage, but that was only the trigger. Some traders may have needed to buy due to pipeline issues in California, while Mexico has been seeking US West Coast cargoes to feed demand on its Pacific side.

Meanwhile, EIA data released Wednesday showed gasoline stocks on the US West Coast at 26.6 million barrels for the week ending September 28, not a record low but 6% below the same week last year. Traders said stocks of low RVP gasoline were even lower ahead of a seasonal switch to a higher RVP in early November.

"It's very tight,” said a longtime broker. "I don't think one refiner can single- handedly bounce this thing up as high as it went.”

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