By BEN LEFEBVRE, CASSANDRA SWEET and ALISON SIDER
Valero Energy said late Thursday it temporarily stopped selling gasoline in California's wholesale market as a string of refinery outages resulted in a regional gasoline shortage.
Analysts fear the scramble for the motor fuel will send prices in the state close to $5/gal and force some gas stations to close.
The lack of gasoline pushed California's wholesale, or spot, prices of $4.10/gal Thursday, a 39% increase from Aug. 6, the day an explosion shut down Chevrons 245,000 bpd refinery in Richmond.
Those prices don't include taxes, transportation and other fees, which typically add another 70 cents or more before the gas reaches the pump.
Valero said it will meet its current contracts to supply gasoline, but won't sell into the spot market. But spokesman Bill Day said resumption of spot saleswill depend on markets and inventories.
The company also will continue to supply gasoline to its branded and licensed retail stations in the state, Mr. Day said.
Valero, the largest refiner in the US, took the unusual step after a series of shutdowns at Richmond and other refineries.
Supplies have been further limited by a weeklong shutdown of a refining unit in late September at ExxonMobils 149,500 bpd refinery in Torrance. Meanwhile, Chevron's Richmond facility is only operating at reduced rates.
Adding to supply tensions, Phillips 66 on Thursday announced its 120,000 bpd refinery in San Francisco was going to reduce production for an unspecified amount of time due to planned maintenance.
Gasoline supplies were further crimped by a shortage of crude, the feedstock of gasoline, in one part of California.
Chevron shut down of an 85,000 bpd pipeline that ships crude oil from the San Joaquin Valley to refineries in the San Francisco Bay area on Sept. 19 after organic chloride was found in some of the oil put in the pipeline.
A Chevron spokesman said the company was investigating and was working to clean out the pipeline, called KLM, and return it to service.
While a single outage - the fear of shortages - can move prices, the cascade of problems has produced dramatic swings in prices at the pump.
Service stations in the Los Angeles area were selling gasoline Thursday afternoon for $4.45/gal, on average, up 11 cents from the start of the day at midnight, according to GasBuddy.com, on Internet firm that tracks retail gasoline prices nationwide.
San Francisco service stations were charging $4.57/gal, on average, up more than 12 cents a gallon, or 2.8% since midnight, according to GasBuddy.
Thursday's price jumps in California are the largest single-day gasoline price increases that GasBuddy has recorded anywhere in the US since the company started tracking gasoline prices in 2000, said Patrick DeHaan, a petroleum analyst at GasBuddy.
Valeros withdrawal from the broader spot market signifies that the states fuel market is becoming illiquid, causing refiners to keep fuel out of the spot market to ensure they have supply for contracted customers.
West Coast gasoline stocks stood at about 26.6 million bbl during the last week of September, the lowest amount for that time of year since 2008, according to the latest data from the US Energy Information Administration.
Valero operates two refineries in California with a combined capacity of 213,000 bpd. These refineries haven't suffered outages.
This is a serious problem, said Richard Hastings, macroeconomy strategist at Global Hunter Securities. Five dollars a gallon is a plausible concept at this point, and it won't be $5 at the airport filling station - it will be all over the place.
As Valero and possibly other refiners leaving the spot market, independent gas stations not holding supply contracts will start shutting down after their fuel runs out, said Avery Ash, manager of regulatory affairs at motorist trade group American Automobile Association.
The stations that don't have contracts from the major retailers - the mom-and-pop station and Costcos - may decide not to sell gasoline at this point, Mr. Ash said. With spot prices that are well north of $4 a gallon, you're needing to sell retail gasoline near that $5 mark, and they may not see the point of doing that.
The situation could last for weeks until West Coast refineries return to normal production rates, Mr. Ash said.
For Jafar Rashid, the crunch has already come. Mr. Rashid said he closed one of his Los Angeles filling stations Wednesday because it became too expensive to buy more fuel for the pumps.
My street price is $4.69, Mr. Rashid said of his per-gallon retail price.
But if I was going to buy the gas [wholesale and] it was going to cost more than $5. I cant pay that, its too expensive. Id rather close the gas station, he said.
Mr. Rashid also owns four Chevron stations but said he has been able to keep those open. The station he shut down Wednesday will also be converted to a Chevron station soon, he said.
I don't want to buy independent gas anymore.
Rose Marton and Ken Clark contributed to this story.
Dow Jones Newswires