Refinery Fire Expected to Boost Gas Prices

Story first reported from USA Today

Motorists in West Coast states are about to see a big spike in gas prices, the fallout from a fire that cut production at one of the region's largest oil refineries.

Gasoline prices, now averaging $3.88 a gallon in California, $3.72 in Washington and $3.69 in Oregon, could surge to $4.15 to $4.25 a gallon over the next week to 10 days following Monday's partial shutdown of a Chevron refinery in Richmond, Calif.

Nationally, gasoline prices have climbed 27 cents a gallon in the past month. While the refinery fire will drive prices along the West Coast, it will also lift the national average — now $3.65 a gallon — above year-ago levels.

"August looks like a very touch-and-go month for the entire country," says Oil Price Information Service energy analyst Tom Kloza, who expects price relief after Labor Day. For the year to date, gasoline has averaged $3.61 a gallon — 10 cents more than 2011's full year average, the most expensive year ever, he says.

Patrick DeHaan, senior oil analyst for gasbuddy.com, expects California, Oregon and western Washington state to experience price spikes like the ones that hit major parts of the Midwest in June, when an Illinois refinery shut down and three others in the state cut production. Oil and gas consultants say that the price hikes are unavoidable.

"The West Coast is on the launch pad waiting for takeoff," DeHaan says. "We're talking over $4 a gallon, easily. It's not going to be good for motorists."

Prices in Illinois, Indiana, Michigan, Wisconsin and Minnesota remain up to 39 cents a gallon higher than the national average of $3.65 a gallon, according to the Oil Price Information Service. "The infection is going to spread from the Midwest to the West Coast," DeHaan says.

Wholesale prices in San Francisco and Los Angeles have already spiked more than 30 cents a gallon, some of the biggest one-day jumps ever. Those prices have yet to fully pass through at the pump, but are expected to continue pushing prices up through mid-August.

The Richmond refinery supplies about 140,000 barrels of gasoline a day, about 15% of northern California's daily consumption, Kloza says. Regional inventories were already low compared with the rest of the nation, he says.

Crude oil is up sharply since bottoming near $77 a barrel June 28. Wednesday, benchmark West Intermediate traded at nearly $95 before settling off 32 cents to $93.35 on news that weekly U.S. demand eased for the first time since June.

Monday's refinery fire caused billowing smoke for miles, prompting hundreds of nearby residents to seek medical care for eye irritation and breathing issues.

The blaze in the refinery's No. 4 Crude Unit was contained in about five hours, Chevron said, although there was a minor flareup Wednesday. Three employees suffered minor injuries.

The five-hour refinery fire caused billowing smoke for miles. Doctors Medical Center in nearby San Pablo said more than 300 people sought help, complaining of eye irritation and breathing problems. And Kaiser Permanente's Richmond Medical Center said it treated more than 350 people with respiratory concerns.

Carol Bluitt, who lives blocks from the refinery, says she was traumatized by the blaze. "You could clearly tell there was something toxic in the air," she says. "My eyes were really, really red and running."

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Crude Oil Prices Down - For Now

Story first appeared in The Washington Post.
Crude oil prices slid Monday to the lowest level since February as weak economic data and high prices dampened expectations for consumption just three weeks ahead of the summer driving season.

Oil analysts also said that the outcome of European elections — with candidates critical of government austerity measures winning in France and Greece — had also revived concerns about the stability of the euro zone. A stronger dollar also pushed oil prices down slightly.

The price of the benchmark West Texas Intermediate grade of crude oil fell 55 cents to $97.94 a barrel for June delivery, a drop of 11 percent since the 2012 peak of $109.77 reached Feb. 24.

U.S. gasoline prices have also eased slightly, edging down to $3.78 a gallon, down about 4 cents from a week ago and down 15.5 cents in the past month, according to AAA, though nine states still have prices of $4 a gallon or more.

While still steep, lower gasoline prices could defuse a potentially thorny campaign issue for President Obama. The GOP presidential front-runner has said that there is “no question” that Obama is to blame for high gasoline prices. Obama has blamed global supply and demand.

An oil analyst at Oppenheimer & Co., said the reasons for lower oil prices recently were weak demand caused by slow economy; less fear of potential supply disruption; Obama’s threat to go after financial speculators; Saudi Arabia’s increased production to reduce prices and help economic recovery; and increased U.S. oil production.

Oil analysts warned that crude prices could still firm up if the economic recovery picks up or if there are renewed fears of a supply disruption in the Persian Gulf.

There have been some disappointing economic numbers, and there are concerns over the European elections and the overall euro sovereign-debt issue. But U.S. oil demand is holding up well given the high oil prices and the moderate pace of U.S. economic growth. We expect that U.S. economic growth of around 2 percent will continue to support U.S. oil demand.

Recent financial deals to keep open some aging East Coast refineries have also eased concerns about gasoline prices in that region, and U.S. inventories are plentiful.

Gasoline prices could increase as the peak driving season approaches. This summer looks like it may be slightly weaker than originally thought, but it’s still a tight market, and summer gasoline is hard for refiners to make. The worst isn't over for consumers, and there will probably be another price pickup before the July Fourth weekend.

The reversal of the Seaway oil pipeline, which runs from Oklahoma to refineries along the Gulf Coast, would ease the bottleneck at Cushing, Okla., and raise prices there. The Cushing oil terminal is where the New York Mercantile Exchange prices its benchmark crude.

The global oil supply picture has been less dire than many oil traders expected.

Higher Saudi oil production has offset declines in Iran’s oil exports. These have been impeded by Europe’s decision to impose an embargo on imports from Iran and by the tightening of U.S. financial sanctions worldwide against companies buying oil from Iran.

In addition, Iraqi oil production and exports hit recent highs in April.

Supplies have been disrupted by local fighting in the Sudans, Syria, Yemen and Nigeria. And Iran remains a major wild card. For now, however, geopolitical anxieties have eased.

It seems like the concerns over Iran have receded into the background a little bit. The market has been much more focused on the economy. In both Washington and Iran, the rhetoric has died down a little bit.

Global demand remains uncertain, given the debate over austerity in Europe and signs that China’s breakneck growth may be slowing somewhat.

In addition, now that Japan has closed all of its 54 nuclear power plants in the wake of last year’s tsunami, the Asian economic giant is importing 300,000 to 400,000 barrels of fuel oil a day. Several other countries have been building up inventories, which were drawn down in Europe during the conflict in Libya last year.


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