By Nicole Jao
NEW YORK, April 16 (Reuters) – California’s gasoline inventories have declined to record lows as fuel prices have surged nationwide on the back of the war on Iran, and analysts warn that the full effect of supply disruptions tied to the closure of the Strait of Hormuz has yet to hit the Golden State.
Motorists in California as of Thursday were paying an average of $5.86 a gallon, highest in the U.S., far above the $4.09-per-gallon nationwide average, according to the American Automobile Association.
But because the state relies on refined products from Asia, the crunch is expected to worsen, analysts said, making California among the first places in the U.S. to feel the supply sting from the closure of the Strait of Hormuz, the artery used to transit a fifth of the world’s oil-and-gas supply.
“The Energy Commission is in close communication with all in-state refiners to ensure adequate transportation fuels supply during this volatile period of supply contraction due to the effective closing of the Strait of Hormuz,” the agency’s spokesperson Niki Woodard said.
Statewide gasoline stocks have averaged 9.44 million barrels for the four weeks ended April 10, lowest in the California Energy Commission’s data set, which goes back as far as 2005. Those inventories are composed of stocks of California’s blend of gasoline, blending components and non-California gasoline.
The state is vulnerable to price shocks because it is isolated from the nation’s fuel pipelines, forcing it to rely more on imports from Asia, where refiners import Middle Eastern crude and refine it into gasoline and other products used on the U.S. West Coast.
The $5.86 statewide average represents a 26% increase since the outset of the Iran war, according to AAA. California’s gasoline prices are higher because of taxes and the extra cost to produce its unique gasoline blend, developed to reduce smog that was once a fixture over Los Angeles.
INVENTORY DECLINES
The full effect of declining gasoline and crude imports has not yet shown up in California’s fuel system, Michael Mische, professor at the University of Southern California, wrote in an analysis this week. Shipping refined products from Asia to the West Coast typically takes several weeks.
Over the next one to two weeks, gasoline imports are expected to drop off sharply, the analysis shows. “This will mark the point at which the import shock becomes fully visible in terminal supply and, ultimately, at the gas pump,” it said.
California’s gasoline inventory reduction may get worse over the next several weeks, Susan Bell of Rystad Energy said.
The state was once a major oil producer, but in recent years it has become more dependent on crude and fuel imports as two refineries accounting for approximately 20% of California’s refining capacity have closed. Its crude oil inventories stood at 10.09 million barrels, down more than 23% from a year earlier, according to the CEC.
Refineries in California are sourcing imported crude and gasoline from alternative sources to offset the loss of Middle East cargoes, Woodard said. “We are not predicting a near-term supply challenge.”
As it stands, the agency expects enough inventory through mid-May. Californians consume about 36 million gallons per day.
(Reporting by Nicole Jao in New York; editing by David Gaffen)
