Oil futures dropped Friday as traders bet that Hurricane Katrina wouldn't harm oil and gasoline operations, but a sharp jump in California wholesale gasoline prices caused by a flurry of refinery problems indicated that state motorists wouldn't get anyrelief from record fuel costs.
Light, sweet crude oil for October delivery fell to $66.13 a barrel Friday, down $1.36, or 2%, from Thursday's record $67.49 closing price. Analysts attributed the decline to profit taking as weather reports indicated throughout the day that Hurricane Katrina probably would miss petroleum facilities in the Gulf of Mexico.
But California gasoline prices could jump as the result of a fire Wednesday at a Tesoro Corp. refinery in Northern California, which might reduce production at the 168,000-barrel-a-day facility for at least a few weeks, traders said. Because California refineries typically maintain smaller inventories than refiners elsewhere in the nation, a disruption in refinery operations can quickly squeeze supplies and boost prices, analysts said.
"Today was a really wild day -- and I expected that after the fire at Tesoro, which occurred at the worst possible time for Tesoro and for California consumers," said Tom Kloza, chief oil analyst for the Oil Price Information Service. Kloza said the incident came at a delicate time: "the stretch run" to the traditional summer driving season, which ends Labor Day.
On Friday, Kloza pegged the cost of regular-grade gasoline at $2.20 to $2.24 a gallon on the Los Angeles spot market, the highest level he had seen and up sharply from the $2.17 close Thursday. Refiners and others can buy last-minute fuel supplies on the unregulated spot market, where fuel is thinly traded.
Adding 60 cents for taxes and transportation would put the break-even retail cost of gasoline at about $2.80 to $2.84 a gallon.
The Tesoro refinery fire hadn't affected retail California gas prices as of early Friday morning, when AAA samples fuel prices. The statewide average price of a gallon of self-serve regular was $2.794 on Friday, down one-tenth of a penny since Thursday, AAA said. Nationwide, the price barely budged from Thursday, to $2.601 a gallon from $2.603.
Kloza said a lengthy outage at the Tesoro refinery could increase California gas prices by 5 cents to 10 cents a gallon.
It was unclear Friday how quickly the Tesoro refinery would be brought to full production. The fire shut down a fluid catalytic cracking unit, a crucial step in the gasoline-making process.
"We have no idea. We do not have a complete determination yet," said Jon Ballesteros, spokesman for the Tesoro's Golden Eagle refinery in Martinez, Calif. "We are still conducting our investigation and assessment."
Other refinery problems have been reported, including the outage of a hydrogen unit at Shell Oil Co.'s refinery in Martinez. Shell has refused to comment on the matter.
California's unique blend of cleaner-burning gasoline, which is produced by few refineries outside the state, means "you can't just go across the street and get it somewhere else," said Phil Flynn, vice president and senior market analyst for Alaron Trading Corp. in Chicago. "For California, this is going to be a devastating blow because they are already paying some of the highest prices in the country."