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California's contrarian gasoline market reverses trend again for 2016

The US West Coast market is strange. Disconnected from the rest of the US, it's a bit of a red-headed stepchild, especially for gasoline.

While the Gulf Coast can send refined products up to the Midwest or Atlantic Coast via pipeline, creating natural, obvious arbitrages, no infrastructure extends westward past the Rocky Mountains. This isolation (and strict environmental mandates in California) makes the West Coast one of the most volatile gasoline markets in the world.

That unpredictability was exasperated in February 2015, when ExxonMobil was forced to shut the gasoline-producing fluid catalytic cracker at its 149,500 b/d Torrance refinery after an explosion.

From the time the explosion occurred through the end of August, the differential for Los Angeles CARBOB gasoline saw a day-on-day price change of at least 10 cents/gal 43 times. During the same period in 2014, the price moved at least 10 cents/gal just five times.

brown-la-carbob

The summer is always a busy time for gasoline markets, but that period in 2015 was a different kind of beast for the West Coast. High demand, inconsistent imports and refinery outages created even bigger daily moves than even the most experienced traders were accustomed to seeing.

So, naturally, West Coast gasoline differentials have done nothing but fall since the start of 2016. CARBOB's day-on-day change has averaged around 6 cents/gal over futures since January 1, but most of that has been trending lower instead of dropping one day and jumping the next.brown-west-coast-gasoline-stocks

While the Torrance refinery hasn't fixed its FCC issues (if or when it does, there's an agreement in place for PBF to buy the plant) other refineries along the West Coast have ended planned and unplanned turnarounds, boosting production and pushing gasoline inventories to an 11-month high.

Furthermore, trading has been very illiquid lately relative to normal patterns, with summer-grade specifications set to take place in mid-February.

If historical trends are any indication, 2016 prices for CARBOB could continue to fall through March before seeing a slight rise in April that will carry to August. But if there's any lesson to take away from the West Coast over the last year, it's to never expect anything at all.


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