Brad Plumer has a decent enough explanation of why gas prices have soared in California over the past week or so. Being a California resident, perhaps I can provide a bit more insight into how this has played out on the ground.
Professor James Hamilton explains that a series of refinery and pipeline shutdowns, and a fire at the Richmond Chevron refinery back in August, have conspired to create a perfect storm in California. A power outage shutdown at the ExxonMobil refinery in Torrance last Monday was kind of the last straw. As California is somewhat closed off from the rest of the country in terms of pipelines feeding into the state, this has a major impact. In addition, California mandates a particular blend of gasoline, which reduces smog and other pollution, but also is more specialized to produce. So the price of gas leapt 50 cents per gallon in the last week.
What I’m seeing is that the independent gas sellers are experiencing a much greater hardship. Anyone who uses GasBuddy or just drives around Los Angeles knows that the independents, the gas stations not aligned with a big brand like Exxon or Shell or 76, consistently provide the cheapest gas in the city. They go by names like “United Oil” or something like that. But based on my eyeballing of the situation, these are the outlets where supply has become really constrained, causing prices to shoot up. The Shells and Exxons of the world have seen their prices grow significantly, but a bit more slowly. The United Oils of the world are just pushing off the charts. This could have something to do with refiners price-gouging the non-majors and forcing overall prices upward.
This dynamic could be changing as the supply bottlenecks work themselves out. An independent operator near my house dropped from $4.99 a gallon to $4.79 a gallon just over the past day.
California Governor Jerry Brown has attempted to provide some relief. Typically the state switches to a “winter-blend” of gasoline, which costs less and is more abundant in supply, on October 31. Brown asked yesterday for the California Air Resources Board to allow a quicker switch-over to compensate for the supply bottleneck.
The other option is simply to wait it out. The supply appears to be coming back on line, leading to the price reductions at the independent outlets. It will be important to watch if the prices head all the way back down to the initial price before the supply chain disruptions. But this could boost more transit or car pool use around the state.
It does show the dangers of a dedicated supply line, and how small disruptions can magnify. We have a fairly dedicated supply chain in America, particularly from frequent trading partners in Asia. We saw during the Fukushima disaster how that supply chain can break down. Diversification, as in everything, can be helpful.
Just to add a political context to this, the gas spike happens at a very unfortunate time for the leadership in Sacramento. Jerry Brown wants to pass through this tax increase in Proposition 30 to fill a budget gap and cancel out proposed major cuts to schools. The measure looked decent for the polls. But a price spike could lead voters to ask why they should let the state tax them more (in actuality most of the tax hikes fall on the rich, but it does include a 1/4 cent increase in the state sales tax). This is happening right when vote by mail ballots go out to voters, and that has become an increasingly popular voting method. Half of all votes could get cast before Election Day. And they could get cast during a sour economic environment, thanks to the gas spike.