A gallon of unleaded gasoline cost an average of $4.49 in California yesterday. In San Francisco, gasoline is a dime per gallon more expensive. Gas stations are closing either because they cannot get gasoline or because they cannot afford it at current prices.

Refining problems are at the root of the issues. Chevron Corp.'s (NYSE: CVX) northern California refinery had a fire about a month ago and has not yet returned to full production. In southern California, two refineries owned by Phillips 66 (NYSE: PSX) have been undergoing scheduled maintenance, and an Exxon Mobil Corp. (NYSE: XOM) refinery is recovering from a power outage that halted production. To make matters worse, a Chevron pipeline that transports crude from the south to the north has been shut down due to contamination in the oil.

Refiner Valero Energy Corp. (NYSE: VLO) has stopped selling gasoline on the spot market and is allocating supplies to its customers.

Gas stations owned by small independent operators are closing because they cannot afford to pay $4.90 a gallon for their supplies because that would mean they would have to charge $5 a gallon to their customers, and the customers will not pay that - yet.

The situation is temporary and largely due to the fact that California is its own country when it comes to oil and gasoline. The state's supplies will return, but until then gas station shutdowns, lines at open stations and prices of $5 a gallon are going to be the new normal.

Paul Ausick


Filed under: 24/7 Wall St. Wire, Commodities, Oil & Gas Tagged: CVX, PSX, VLO, XOM

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