California refinery fire drives up diesel prices

Aug. 4, 2005
The fire of the Chevron El Segundo refinery in California has led to dramatic run-ups in diesel prices for the entire West Coast region

The fire of the Chevron El Segundo refinery in California has led to dramatic run-ups in diesel prices for the entire West Coast region. A fire at the refinery on July 20 caused the outage.

“Average diesel prices in California is $2.817— that’s a new record that was established today,” Denton Cinquegrana, markets editor for Oil Price Information Service (OPIS) told Fleet Owner “Yesterday the average price was $2.764 so prices went up five cents in one day.

“California is getting the worst of [the price increases],” Cinquegrana continued. “But Arizona, Nevada, Oregon and Washington will be experiencing these increases as well. My forecast is very expensive for diesel over the balance of the month. At the rate we’re going, $3 for a gallon of diesel isn’t out of the question.”

According to Jacob Bournazian, economist for the Energy Information Administration (EIA), the El Segundo refinery processes 273,000 barrels per day. The refinery is regarded as among the top diesel producers in the region.

The Los Angeles Times reported that Chevron had issued a statement that repairs to the refinery will take another week and a half. Additionally, Chevron said it will continue to supply fuel to its customers with contracts, but independent dealers will have limited access.

This means independent pump stations will post the largest spikes in retail prices, Bournazian said. “Those unbranded dealers are paying whatever the market will bear. Independent dealers normally have a downward competitive pressure on prices in a normal-functioning market. However, in tight markets they can actually cause prices to rise faster than normal because of the insecurities in supply arrangements.”

And in spite of Chevon’s most recent assessment of the damage, oil analysts believe repairs may even run a week longer than the estimate. “Even when the refinery does restart, it takes a little while to get that unit up and running,” said OPIS’s Cinquegrana.

The refinery outage came amidst an already-tight global diesel market. “From July 20, prices had already been building up,” Cinquegrana said. “And [the trend] really becomes more visible when there’s a supply disruption. Prices for diesel were strong to begin with and the refinery fire put things over the top.”

About the Author

Terrence Nguyen

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