This isn't current, but it does speak in detail about California's oil supply.
energy.ca.gov
Where does our oil and gasoline come from?
California consumes substantial amounts of gasoline - about 16 billion gallons per year! Crude oil is made into gasoline, and the crude comes from within-state oil wells (42%), Alaska (22%) and foreign sources (36%).
Most (about 90%) of our gasoline is refined in-state, but additional quantities of gasoline and blending components are imported because refining capacity cannot keep pace with growing demand.
California is also isolated from other refining centers in the United States. Because most of California is designated by the federal government as an air quality "non-attainment" area, our gasoline must meet stringent air quality requirements to burn cleanly to protect public health and the environment.
What happened to oil and gasoline prices this year?
Retail regular-grade California gasoline prices increased to $2.60 per gallon for the week ending August 8, 2005, up from $1.98 at the beginning of the year.
Statewide spot wholesale gasoline prices in California were $2.08 per gallon on August 8, 2005; up from $1.23 at the first of the year.
California retail diesel prices have also increased, rising to $2.97 on August 8, 2005, up from $2.06 at the beginning of the year.
Additional price information can be found on our main gasoline page.
What factors influenced these price increases?
The answer is three-fold: the world price of crude oil, demand and supply.
Crude Oil
Since the beginning of 2005, the price of crude oil has jumped more than $26 dollars a barrel.
Today, California gets approximately 22 percent of its crude oil from Alaska. At the Energy Commission, we chart Alaska North Slope (ANS) crude oil, a middle grade crude. On January 3, 2005, ANS sold for $35.39 a barrel. On August 8, 2005, it sold for $61.89 a barrel. Since there are 42 gallons in a barrel, this translates into a per gallon increase of 66 cents for crude oil since the beginning of the year. Retail prices by August 8, 2005 had increased 62 cents per gallon, nearly the same amount.
Demand
Supply and demand can also influence retail price. In California, overall gasoline refinery production is not keeping pace with demand, which causes the state to rely on more imported gasoline. California currently imports more than 10 percent of its gasoline, and those imports are expected to grow to about 20 percent by 2010. Over the past several years, gasoline demand has grown between two to three percent per year, primarily as a result of our state's growing population. However, consumers are also choosing less fuel-efficient vehicles. Of the new vehicles purchased in 2003, one-half were minivans, SUVs or light duty trucks. The supply/demand imbalance becomes even greater in the summer months when gasoline consumption typically rises by nearly 10 percent during the "summer driving season."
If a refinery problem occurs in California, the state relies on tankers to ship gasoline to California from the half dozen refineries around the world that can produce the state's clean-burning gasoline. Even the closest refinery, in the state of Washington, is 7 to 10 days away, and gasoline from Texas must come across Panama. In other states, there is a system of pipelines that move gasoline and diesel products throughout the mid-West and eastern states, especially, if there is a refinery problem.
Supply Problems
Earlier in 2005, California experienced price increases caused by supply problems.
Gasoline consumption typically rises during the summer because more people are on the road during the "summer driving season." For example, in 2003 and 2004, daily gasoline demand rose 9 percent and 7 percent, respectively, when you compare consumption in January to August.
Refineries prepare for this increased summertime demand by doing their routine maintenance during January and February. Refineries reduce their gasoline production to perform maintenance and change over to summer blend gasoline during what are called "turn-arounds." Refiners typically build inventories to take them through this turn-around period when production at the refinery fluctuates.
At the start of this year's refinery maintenance season, inventories of gasoline were at high levels. But above normal refinery turn-arounds this year, combined with unexpected problems with restarts and other difficulties, cut deeply into production and stocks, causing temporary but sharp price increases.
In 2005, six refineries began turn-arounds in January, one in February, and another in March. One other refinery had unexpected problems in late February. While restarting, three of these refineries experienced difficulties that, combined, caused unplanned purchases of about a million barrels of gasoline to meet requirements. This caused sudden increases of retail prices that were well above the added higher cost of crude oil.
What are the various costs associated with producing gasoline?
There are four main areas associated with the costs of gasoline:
Crude oil cost
Taxes
Refinery costs and profit margin
Dealer costs and profit margin
About the only area that doesn't change much are excise taxes.
Crude oil cost is the price paid for a barrel of crude oil on the international market divided by 42 gallons in a barrel. This will give the price of crude oil per each gallon of gasoline. As we have seen this year, this is often the most volatile price of the fuel. Crude oil is traded as a commodity, and as the price goes up, prices for gasoline can change very quickly. When prices for crude come down, the price for gasoline typically comes down -- but very slowly. This is typical for most commodities.
For every one dollar increase of the cost of a barrel of crude oil, there is an average increase of about 2.5-cents per gallon of gasoline. So, a $10 increase per barrel in crude prices means a 25-cent increase at the pump. This year's $26.50 increase in crude oil from January 3 to August 8 means a 66-cent a gallon increase in gasoline prices. This additional cost will not go away until crude oil prices start to come down.
Taxes for gasoline in California are: 18.4 cents/gallon for federal excise taxes; 18 cents/gallon for state excise taxes; and local and state sales taxes. Sales taxes vary depending on the city and county you may be in...but on average the sales tax adds between 9 and 20 cents to a gallon of gasoline, depending on the local rate and the final price locally of the gasoline.
Dealer costs and profit margin (or the amount that the dealer charges for the fuel) includes all costs associated with the distribution and retailing of motor fuel, including but not limited to: franchise fees and/or rents, wages, utilities, supplies, equipment maintenance, environmental fees, licenses, permitting fees, credit card fees, insurance, depreciation, advertising and profit. Dealer margin normally lags changes in the wholesale price of gasoline.
Refinery costs and profit margin (or the prices charged by the oil companies) must cover all costs associated with production, distribution, and acquisition of gasoline. The refinery costs and profit margin covers all costs associated with refining and terminal operation: crude oil processing, oxygenate/ethanol, product shipment and storage, oil spill fees, depreciation, brand advertising, purchases of gasoline to cover refinery shortages and profits.
Why not just tell the oil companies to lower their prices? Why can't government do something about the prices?
Ronald Reagan removed regulations on oil companies and petroleum prices when he was President. Since then, gasoline prices have been dictated by supply and demand and free market economics. There are no government controls on the price of oil or gasoline. So, government cannot tell gasoline companies to hold their prices at one level or to decrease them.
Does a free market really exist with gasoline? It seems all the gasoline stations sell at the same price.
This is untrue. There are differences between stations and prices. Some stations have lower prices because they typically do not take credit cards - they take only cash or ATM cards. Credit cards can add about two to three percent to the cost of the transaction. This extra cost is passed on to the customer in higher prices at the pump for the convenience of using a credit card. Other stations, such as independents and so-called "Mom and Pop" stations usually have lower prices because they do not have multi-million dollar advertising campaigns to convince you to buy their product. So, their prices usually are lower than the "name brand" stations.
The independents and non-branded stations buy gasoline usually on what's called the unbranded "spot" market. This is the wholesale market that is most vulnerable to refinery problems and the fluctuating cost of crude oil. The price is normally lower than the branded wholesale prices. But we can have unbranded prices soar higher than branded prices when the supplies get tight. So, the independents and "Mom and Pop" stations sometimes will have to price their gasoline higher than branded stations.
Aren't the oil companies all in collusion to set their prices at the same level? Aren't they all price fixing?
Rumors and charges of collusion among the oil companies have been raised for decades with nothing ever proven. Investigations have been undertaken by California Attorney General and by federal authorities looking into these allegations.
Why do the gasoline stations raise their prices almost daily, and it seems like they sometimes do it hourly?
Prices are set by what the station owner will have to pay for the NEXT delivery of gasoline. If prices are going up on the wholesale level, The station operator has to pay for what the next shipment will cost when it's delivered. If the delivery is going to cost more than what the dealer is charging at the pump now, they are going to lose money on the higher-priced new gasoline. So, the dealer has to increase his price whenever there is an increase in the wholesale price of the fuel to pay for that more expensive gasoline in the future.
But sometimes, station owners will hold down their price increases in order to remain more competitive with other stations, temporarily costing them money. This can be especially true for independent service station owners during period of rapid wholesale price increases.
What is going to happen this spring and summer?
It's hard to predict the future, especially with a commodity like gasoline, whose price is extremely volatile.
As refineries come back into normal production, upward pressure on gasoline prices will ease once inventories return to normal. However, unplanned refinery outages can occur at any time. Depending on their extent and duration, and prevailing market conditions at the time, these events could sharply increase gasoline and diesel prices.
The transition to summer-grade gasoline could also make gasoline prices increase. As of January 1, 2004, most of California's gasoline uses ethanol instead of MTBE (methyl-tertiary butyl ether) as an oxygenate to help burn the gas more cleanly. Other states are also changing and not using MTBE because of the problems with that additive. As the U.S. East Coast makes this transition to MTBE-free gasoline for the first time, competition for valuable gasoline blend stocks could raise the cost of making California gasoline..
Wholesale ethanol prices generally declined during the gasoline price spike. Short-term changes in ethanol prices are a relatively small factor directly affecting gasoline prices.
Strong demand for gasoline and diesel in California and the U.S. would increase the pressure on prices.
If worldwide crude oil demand stays high, the dollar remains weak against other currencies, and crude oil inventories do not build, gasoline prices will be higher than normal, even if no California refinery problems arise.
What can I do to cut my gasoline use and expenses?
We have another website devoted to consumer information. Please visit our gasoline-saving tips page.
* * * |
