Refinery Fire Means Gas Prices “Could Get Very Ugly, Very Fast”

Wednesday, August 08, 2012

There has barely been time to assess the health ramifications for Richmond residents subjected to dense black smoke from the Chevron refinery fire Monday night that sent hundreds of people to the hospital.

But it is a foregone conclusion that California’s gasoline prices, already highest in the nation, are headed higher quickly. petroleum analyst Patrick DeHaan predicted, “It could get very ugly, very fast.”

The 110-year-old refinery has suffered a series of problems over the years: a fire in 1989 caused by a hydrogren leak; a 1999 blast that unleashed fumes that ended up hospitalizing 1,200 nearby residents; and a 2007 fire that lasted 10 hours.   

The plant is the second biggest refinery in California and one of the largest in the nation. It processes 243,000 barrels of oil a day, which accounts for about 15% of the state’s fuel production. That includes gasoline, diesel and jet fuel.

Fuel traders immediately pushed the spot price of gasoline up 36 cents a gallon, although that price will be mitigated at the pump by contracts already in place for gas purchases. But the upward pressure on prices has just begun. The price on Tuesday was already 6 cents higher than the week before, partially a product of the heavy summer driving season and the rising international price of crude oil. Analysts said the spike was a record for one day.

The California price surge comes, ironically, one day after the Los Angeles Times ran a feel-good piece about state gasoline prices that focused on refinery outages and pipeline spills in Wisconsin, Indiana and Illinois wreaking havoc with prices everywhere else, “leaving the state in the rare position of having cheaper gasoline than many parts of the Midwest.”

That lasted less than a day.

Bob van der Valk, a Montana-based fuel price analyst, said the fire couldn’t have come at a worst time. “This is a perfect storm. You have refineries at their lowest inventory levels.”  He predicted $4.50-a-gallon gas by Labor Day.

Assessments of the damage are just beginning, but market watchers are already weighing in with their predictions on how long the key refinery might be out of commission. Paul Sankey, an analyst with Deutsche Bank, warned that the facility may be out of production for “several months at least.”

Investors, apparently, did not express fear that the closed refinery and ensuing repair costs were going to damage Chevron’s bottom line. Shares of its stock rose 0.57% to $111.95 Tuesday.

–Ken Broder


To Learn More:

Gasoline Prices to Spike in Bay Area Following Richmond Refinery Fire (by George Avalos and Dana Hull, Bay Area Newsgroup)

Residents near Refinery Fire Heckle Chevron Execs (by Terry Collins and Jason Dearen, Associated Press)

California Gasoline Prices to Surge after Chevron Refinery Fire (by Ronald D. White and Maria L. La Ganga, Los Angeles Times)

Refinery Outages, Pipeline Ruptures Send Gasoline Prices Climbing (by Ronald D. White, Los Angeles Times)

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