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California gasoline prices to surge after Chevron refinery fire

Analysts say prices could rise at least 35 cents a gallon, raising fresh concerns about the toll on consumers.

August 08, 2012|By Ronald D. White and Maria L. La Ganga, Los Angeles Times
  • Smoke and flame billow from a crude oil unit at the Chevron refinery in Richmond, Calif. The 110-year-old plant processes 243,000 barrels of oil a day into gasoline, diesel and jet fuel, accounting for about 15% of the state’s fuel-making capacity.
Smoke and flame billow from a crude oil unit at the Chevron refinery in Richmond,… (D. Ross Cameron, Contra…)

RICHMOND, Calif. — California gasoline prices could surge at least 35 cents a gallon this week as fire damage is assessed at the huge Chevron Corp. refinery here, raising fresh concerns about the toll on consumers coping with a tepid economic recovery.

"It could get very ugly, very fast," said Patrick DeHaan, senior petroleum analyst for the price-watch websites run by GasBuddy.com.

A long-term shutdown could be extremely expensive for drivers, he said. He pointed to a February blaze at a BP refinery in Washington state that left the plant out of commission until May and caused Pacific Northwest gasoline prices to increase about 70 cents to $4.40 a gallon.

The Chevron refinery fire, which began Monday afternoon, sent up a column of odorous black smoke that could be seen for miles. Nearby residents were told to seek shelter indoors. By Tuesday evening, more than 900 people had shown up at area emergency rooms complaining about respiratory and other problems.

Chevron officials said they were still evaluating damage at the 110-year-old plant, which processes 243,000 barrels of oil a day into gasoline, diesel and jet fuel, accounting for about 15% of the state's fuel-making capacity.

The refinery is one of 14 in California capable of making the state's special blend of gasoline, which is the least polluting sold in the U.S. It's also more expensive to make and is produced by few refineries outside the state.

Wholesale fuel traders reacted immediately by driving up spot prices more than 30 cents a gallon. Most gasoline stations don't pay the spot price, instead getting their fuel under long-term contracts, but the spot price is a strong indicator of where retail prices are headed.

Economists and consumer advocates said the Chevron fire could be a big blow to California consumers who had already begun to rein in their spending.

William Yu, an economist with the UCLA Anderson Forecast, said a prolonged shutdown could knock half a percentage point off the roughly 2% growth rate in the state's economy.

"Consumers will have to bear the burden of higher fuel costs," Yu said. "They will have to cut back on other kinds of consumption to maintain their budgets."

Charles Langley, gasoline project manager for the Utility Consumers Action Network in San Diego, feared that the fire would have "a horrific impact on the households who are struggling and just can't afford another $20 to $30 to $40 a month out of their budgets."

"In this economy, it's the kind of thing that could be a back breaker to poorer households," he said.

Small-business operators are preparing for the fallout.

Roberto Rubio, the 70-year-old owner of Rubio Machinery in Baldwin Park, was already factoring in the possibility that driving his 2011 GMC pickup truck could cost an additional $60 to $65 a month, an expense he could do without.

"It's too much. This kind of thing cannot help the economy," said Rubio, whose business repairing food-service machinery for restaurants still hasn't fully recovered from the recession.

Moreover, he said, he can't pass on higher prices to his customers. "If I raise my prices," Rubio said, "my customers will just look for another repairman."

The fire couldn't have happened at a worse time for the state's motorists, with supplies starting to tighten with a month left in the busy summer driving season, said Tom Kloza, chief oil analyst for the Oil Price Information Service.

Pump prices in California already had begun rising several days ago largely because of increasing oil prices, which are headed back toward $100 a barrel.

The state's average price for a gallon of self-serve regular reached $3.859 on Tuesday, up nearly 6 cents in a week, according to AAA's daily price survey, which the Oil Price Information Service tabulates based on credit card receipts from more than 120,000 retailers.

Refinery and pipeline problems in the Midwest pushed up average prices there more than 25 cents a gallon during the same period, putting California in the unusual position of having cheaper fuel than states such as Illinois at $4.06 a gallon and Michigan at $3.992, AAA said.

"This is creating a pretty severe situation," said Kloza, who watched wholesale spot prices for the state's blend rise 31 cents a gallon in L.A. and 34.4 cents in San Francisco. "For California, it's a big refinery and very important to the market, and there just aren't that many other places that can make the state's blend of gasoline."

Adding to the concerns is the reinvigorated price of oil, which traded close to $77 a barrel at the end of June. In New York futures trading Tuesday, U.S. benchmark crude rose above $94 a barrel for the first time since May, closing at $93.67, up $1.47.

The Richmond facility is particularly important for Southern California, because it supplies gasoline to the L.A. area, said Bob van der Valk, an independent fuel price specialist.

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