West Coast Surge

By Brian L. Milne, Refined Fuels Editor for Telvent DTN

 

Nationally, gasoline prices at retail outlets across the country’s major metropolitan regions are trending lower, with the U.S. average for regular grade gasoline sliding for the past month and expected to continue moving down.

 

Driving the decline is the end of the summer vacation season when gasoline demand traditionally weakens along with the switch to a winter-grade gasoline that is less costly to produce.

 

Seasonally, there are two major transitions in gasoline production annually with these transitions the result of government required efforts to reduce the release of harmful emissions into the atmosphere. The emission release is more acute during higher temperatures during the summer months, so government regulations require that gasoline be blended with a lower Reid Vapor Pressure, which measures the pressure necessary to keep a liquid from continually vaporizing and designed by a gentleman named Reid.

 

The switch from winter-grade gasoline to summer-grade during the spring hikes production costs for the fuel, and is a key reason why gasoline prices have historically increased during the spring. The opposite is true as we revert to the winter-grade, and the supply pool can expand quickly too, as the less stringent blend also allows refiners to include a larger menu of feedstocks that can further add to inventory without production restraint by refiners.

 

Not all parts of the country are experiencing a trend lower in gasoline prices however, with wholesale costs along the West Coast, especially in California, continuing to climb midway through September. That has pushed retail prices sharply higher in the Golden State, with pump prices above the $3 gallon mark.

 

The contra-seasonal spike in retail gasoline prices for the state was generated by outages at production units at a pair of refineries in the San Francisco area in August, with the contraction in gasoline output tightening up the supply-demand balance in California, which affected the Pacific Northwest, Nevada and Arizona too.

 

The refinery units are again operating and supply tightness is easing now, which will limit the uptick in pump prices and will begin to pressure values for the balance of September.

 

View DTN’s Weekly and Historical Gas Prices.

 

In contrast, a tight supply situation in the New York market which reached north to Boston and surrounding regions has eased, with wholesale gasoline prices for the Northeast tumbling. That will offer drivers in these markets a break when they fill up their automobiles this week.

 

About the Author

Brian L. Milne is the Refined Fuels Editor for Telvent DTN-a leading business-to-business provider of real-time commodity information services. Milne has been focused on the energy industry for nearly 14 years as an analyst, journalist and editor. He can be reached at mailto:brian.milne@dtn.com

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