Gasoline supplies are up . So are wholesale gas prices.
Gasoline supplies are at a 5-month record high in California
according to the latest report from the California Energy
Commission (CEC), but prices at the wholesale level are going up
because the oil companies are up to their usual shenanigans.
Normally, when there is more supply, and less demand (which is
what we are seeing now) the price of fuel should go down. But
that isn't what's happening, because in California, the laws of
supply and demand don't really apply ... instead we have demand
and supply, where the so-called competitors demand more money
for their fuel by intentionally supplying less of it, or by creating fear.
Last week saw two refinery "problems" that scared the market into
a higher-priced modality. The first is a breakdown at Chevron's
massive El Segundo, California, refinery. A filing with the South
Coast Air Quality Management District reported that Chevron was
"flaring unexpectedly" at El Segundo around 8pm last Thursday.
he report didn't identify what broke down, but according to OPIS,
the Oil Price Information Service, it is a problem with the fluid
catalytic cracking units. Since "cracking" hydrocarbons out of
oil and turning them into gasoline is what refineries do, the price
of wholesale gasoline surged.
Adding fuel to the fire was an announcement by Valero that it is
going to perform "planned maintenance" on a hydrotreater at its
Wilmington refinery. Without the hydrotreater, which feeds Valero's
Fluid Catilytic Cracker, Valero will be unable to produce its
normal volume of gasoline. Again -- an FCC unit, or Fluid Catalytic
Cracker is the part of the refineries that distills gasoline.
The effect on gasoline wholesale prices.
The net result of Chevron's "problem" and Valero's "planned
maintenance" is that the wholesale price of gas has temporarily
surged back up to where it was early last week, on average. In
addition, it drove the price of unbranded independent gasoline
up to about 1¢ more per gallon than the gasoline being sold to
This will have two effects:
First, the rack inversion will limit price decreases by unbranded
independents. Unbranded stations offere the stiffest competition
to brand-names, so it takes them out of the market as truly meaningful
Second, we will also see the unusual situation where brand name
Tier 1 gasoline retailers like Chevron and Shell will actually have
prices that are competitive with the unbranded discount retailers.
Bottom Line: Retail margins are still healthy, an average of about
20¢ a gallon. However, these margins aren't high enough to sustain
significant cost-cutting, nor low enough to justify significant
price increases. For this reason, I predict that we will see prices
climbing slightly at some stations, and declining slightly at others.
The net effect will be that the average price by Thursday should be
no more that 2¢ below the current average, nor more than 2¢ above
the current average.