california energy commission 2005 gasoline price movements in california joseph desmond chairman...
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CALIFORNIA ENERGY COMMISSION
2005 GASOLINE PRICE MOVEMENTS IN CALIFORNIA
Joseph DesmondChairman
California Energy Commission
November 18, 2005
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CALIFORNIA ENERGY COMMISSION
Presentation Topics
• Overview of recent events influencing gasoline prices
• Findings
• Decreased crude oil production and refinery closures in the Gulf of Mexico
• Impacts to crude oil and gasoline prices
• Government agency responses, impacts and activities
• Options for state action
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CALIFORNIA ENERGY COMMISSION
Overview
• Unprecedented retail gasoline price spikes occurred during the late summer of 2005.
• The average California retail gasoline price increased by 29 cents in a single week in late August.
• Factors relating to price spikes in California include supply shortfalls and market conditions following Hurricane Katrina and Rita, increased exports, and refinery outages.
• Government agency responses and staff findings will be presented to address price changes in California.
• This report focuses exclusively on gasoline price changes in the state.
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CALIFORNIA ENERGY COMMISSION
Events Affecting California Wholesale Gasoline Prices(CARBOB Spot Prices)
140
160
180
200
220
240
260
280
300
7/15/057/19/057/23/057/27/057/31/058/4/058/8/05
8/12/058/16/058/20/058/24/058/28/059/1/059/5/059/9/05
9/13/059/17/059/21/059/25/059/29/0510/3/0510/7/0510/11/0510/15/0510/19/0510/23/0510/27/0510/31/05
11/4/0511/8/05
Date
Cents per Gallon
CARBOB Spot Price
July 20 - Chevron's El Segundo
refinery experiences a fire at one of its crude oil units.
September 28 - Large Northern
Californian refinery experiences a problem with a major gasoline
producing unit.
September 24 - Hurricane Rita makes landfall.
September 27 - U.S. EPA extends fuel waiver through
October 24th.September 12 - Power outage in
Los Angeles causes disruptions at three refineries.
September 9 - CARB
announces it will permit early transition to winter
blend gasoline.
September 2 - The IEA announces
that 60 million barrels of crude oil and finished products will be available for
export to the U.S.
September 1 - Jones Act is
waived, allowing foreign vessels to transport petroleum products
between U.S. ports.
August 31 - U.S. EPA fuel waiver is expanded
to cover the entire U.S.
August 29 - Hurricane Katrina makes landfall.
August 24 - Tesoro's Golden Eagle
refinery experiences a fire in a major gasoline producing unit.
Note: CARBOB is California reformulated gasoline blendstock for oxygenated blending
October 17 - Gasoline and crude oil
prices experience significant increases in NYMEX trading due in
part to concern of what impact Hurricane Wilma will have.
October 24th - Hurricane Wima makes landfall on
Florida's West Coast as a Category 3 hurricane.
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CALIFORNIA ENERGY COMMISSION
Findings
• California wholesale gasoline prices rose sharply with New York Mercantile Exchange (NYMEX) market prices following Hurricanes Katrina and Rita.
• California crude oil prices did not significantly impact the retail price spike of gasoline in California during late August and early September.
• Exports to Arizona and Nevada increased by 45% in the four weeks following Hurricane Katrina.
• Temporary shortfalls of supply influenced gasoline prices following the Hurricanes.
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CALIFORNIA ENERGY COMMISSION
Findings
• Unplanned refinery outages affected markets in late July, late August and mid September of 2005.
• Retail gasoline prices followed changes in wholesale prices in the late summer of 2005.
• Swift governmental actions mitigated a prolonged elevation of prices following the Hurricanes of 2005.
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CALIFORNIA ENERGY COMMISSION
Crude Oil Production in the Gulf Coast
• 26% of the total U.S. crude oil production was initially curtailed due to Hurricane Katrina
• Loss of production did not directly translate to the California market.
• Alaska North Slope crude oil prices (the benchmark for California) remained relatively flat in relation to the retail cost of gasoline in California.
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CALIFORNIA ENERGY COMMISSION
Temporary Closure of Gulf Coast Refineries
• About 28% of total U.S. refining capacity was either off-line or operating at reduced rates following Hurricane Katrina.
• Destruction from Hurricane Rita initially resulted in the temporary closure of about 30% of U.S. refining capacity.
• As of November 9, about 5% of U.S. refining capacity remains off-line.
• Midwest pipeline closures resulted in Midwest supply shortfalls.
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CALIFORNIA ENERGY COMMISSION
Crude Oil and Wholesale Gasoline Prices
Daily California Average CARBOB Spot Price vs. Alaska North Slope Crude Oil PriceJuly 1 - November 10, 2005
100
120
140
160
180
200
220
240
260
280
300
7/1/05 7/8/057/15/057/22/057/29/05
8/5/058/12/058/19/058/26/05
9/2/05 9/9/059/16/059/23/059/30/0510/7/05
10/14/0510/21/0510/28/0511/4/05
Date
Cents per Gallon
ANS Crude Price
CARBOB Average Wholesale Price
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CALIFORNIA ENERGY COMMISSION
NYMEX Futures Prices and the Link to the California Market
Gasoline Spot & Futures Prices (LA and the NYMEX)July 1 to November 8, 2005
100
120
140
160
180
200
220
240
260
280
300
320
7/1/057/6/057/11/057/16/057/21/057/26/057/31/058/5/058/10/058/15/058/20/058/25/058/30/059/4/059/9/059/14/059/19/059/24/059/29/0510/4/0510/9/0510/14/0510/19/0510/24/0510/29/05
11/3/0511/8/05
Date
Cents per Gallon
Los Angeles
NYMEX
Katrina StrikesLouisiana
California SpotPrice Peaks In Line With NYMEX
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CALIFORNIA ENERGY COMMISSION
Branded and Unbranded Wholesale Gasoline Prices
CARBOB Branded and Unbranded Rack PricesJuly 1 - November 11, 2005
150
170
190
210
230
250
270
290
7/1/05 7/8/057/15/057/22/057/29/05
8/5/058/12/058/19/058/26/05
9/2/05 9/9/059/16/059/23/059/30/0510/7/05
10/14/0510/21/0510/28/0511/4/05
11/11/05Date
Cents per Gallon
Branded
Unbranded
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CALIFORNIA ENERGY COMMISSION
Retail and Dealer Tank Wagon Prices
California Gasoline Price Comparison
Retail & Dealer Tank WagonJuly 4, 2005 to October 24, 2005
190
200
210
220
230
240
250
260
270
280
290
300
310
320
7/4/057/11/05 7/18/05 7/25/05
8/1/05 8/8/058/15/05 8/22/05 8/29/05
9/5/059/12/05 9/19/05 9/26/05 10/3/05
10/10/0510/17/05 10/24/05
Date
Cents Per Gallon
Retail
DTW
Note: November DTW data not yet available
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CALIFORNIA ENERGY COMMISSION
Retail Gasoline Prices
U.S. vs California Retail Gasoline PricesJuly 1, 2005 - November 14, 2005
200
210
220
230
240
250
260
270
280
290
300
310
320
7/1/057/8/057/15/057/22/057/29/05
8/5/058/12/058/19/058/26/05
9/2/059/9/059/16/059/23/059/30/0510/7/05
10/14/0510/21/0510/28/0511/4/05
Date
Cents per Gallon
California
United States
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CALIFORNIA ENERGY COMMISSION
Gasoline Price Components
• California uses Alaska North Slope spot prices as a benchmark for crude oil price.
• Apparent refiner cost and profit margins include but are not limited to:– refiner profit and – costs of :
• refining and terminal operation• crude oil processing• oxygenate additives• product shipment and storage• oil spill fees• depreciation• purchases of gasoline to cover refinery shortages• brand advertising
• Energy Commission calculates aggregated apparent refiner margins
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CALIFORNIA ENERGY COMMISSION
Gasoline Price Components
• Taxes– Excise tax: Federal 18.4%, California 18%– Sales tax: 7.25% state tax, 0 to 1.5% local tax
• Apparent dealers cost and profit margins include but are not limited to:– dealer profit and – costs of:
• utilities, supplies, equipment maintenance, rents, wages• environmental fees, licenses, permitting fees, credit card fees, insurance, franchise fees• depreciation• advertising
• Data sources: Wall Street Journal for ANS, Oil Price Information Service for wholesale gasoline prices and the Energy Information Service for retail gasoline prices.
• Energy Commission calculates aggregated apparent dealer margins.
• Details can be found at http://www.energy.ca.gov/gasoline/margins/index.html
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CALIFORNIA ENERGY COMMISSION
Gasoline Price Components
2005 Gasoline Price Margins
$2.99
$2.68$2.52
$2.36$2.48$2.55
$2.30$2.12
$1.97
$2.88
SeptemberAugustJulyJuneMayAprilMarch FebruaryJanuary October
-$0.250
$0.000
$0.250
$0.500
$0.750
$1.000
$1.250
$1.500
$1.750
$2.000
$2.250
$2.500
$2.750
$3.000
$3.250
BrandedUnbranded
BrandedUnbranded
BrandedUnbranded
BrandedUnbranded
BrandedUnbranded
BrandedUnbranded
BrandedUnbranded
BrandedUnbranded
BrandedUnbranded
BrandedUnbranded
Price per Gallon $
Crude Oil Cost Apparent Refinery Cost and Profit Margin
Federal Excise Tax State Excise Tax
State and Local Sales Tax Apparent Dealers Cost and Profit Margin
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CALIFORNIA ENERGY COMMISSION
US and International Agency Responses
• International Energy Agency released nearly 60 million barrels of petroleum from their 26 member countries.
– 39 million barrels of crude oil
– 11 million barrels of gasoline
– 10 million barrels of distillates
• The Bush Administration released crude oil from the Strategic Petroleum Reserve and waived the Jones Act rules which limit marine traffic between U.S. ports to U.S. flagged ships.
• U.S. EPA waived certain fuel specifications to quickly expand the availability of gasoline and diesel fuel.
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CALIFORNIA ENERGY COMMISSION
California Government Responses
• Air Resources Board secured regulatory approval for early transition to winter gasoline blending.
• Energy Commission provided accurate real-time information and analysis to the Governor’s Office, Legislature and consumers.
• Energy Commission created a new web page to provide accurate timely information and energy saving tips to the public.
www.energy.ca.gov/consumerfuels/index.html• Energy Commission worked with the Attorney General's Office to
develop an online complaint form for consumers concerned with gasoline price gouging.
• Energy Commission added fuel savings tips for consumers on the state Web site: “Flex your power at the pump.”
• This report was initiated in a press conference on September 2, 2005.
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CALIFORNIA ENERGY COMMISSION
• Short-term actions:
– Streamline permitting for petroleum infrastructure projects.
– Revise law for the Energy Commission to collect detailed data on product movements, sales volumes and prices, and retail data collection.
– Establish a public goods charge on refinery products for research and activities to reduce dependence on petroleum fuels.
– Coordinate with West Coast states’ energy representatives on emergency planning and responses.
– Increase use of contract fuel purchases for public agencies, private fleets, and consumers to reduce the impact of fuel price spikes.
– Expand outreach and public information programs.
– Develop a dynamic system model to rapidly evaluate socio-economic impacts of changes in the transportation fuel sector.
Options for State Action
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CALIFORNIA ENERGY COMMISSION
Options for State Action
• Long-term actions:
– The Energy Commission should secure funding to support transportation-related work at the Energy Commission.
– The Energy Commission should secure funding for research into alternative fuels, alternative fuel vehicles, increasing fuel economy, and implementing of petroleum reduction strategies.
– The Energy Commission should perform a comprehensive economic analysis on the relationship between California wholesale prices and the NYMEX.
– The Energy Commission should conduct a more comprehensive study of retail pricing.
– The state should implement the recommendations in the 2003 and the upcoming 2005 Energy Report recommending a “best practices” siting process for refinery and infrastructure expansions.
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CALIFORNIA ENERGY COMMISSION
Options for State Action
• Long-term actions:– The Energy Commission should support opportunities to expand
pipeline infrastructure to increase the capacity to transport petroleum product within the state.
– The Energy Commission should investigate increasing the use of contract fuel purchases for public agencies, private fleets, and consumers to reduce the impact of fuel price spikes.
– The Energy Commission should develop a dynamic system model to better quantify how multiple events, such as those described in this report affect the consumers, business, and the California economy.
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CALIFORNIA ENERGY COMMISSION
Notes - Crude Oil and Wholesale Prices
• Crude oil price remained relatively flat during the price spike following Hurricane Katrina.
• Wholesale prices, however, rose by 64 cents during the last week of August.
• Refiner margins peaked to all time high of following Hurricane Katrina due to elevated wholesale prices and relatively flat crude oil spot prices.
• Refiner production and inventory levels do not indicate a significant cause of elevated wholesale prices.
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CALIFORNIA ENERGY COMMISSION
Notes - NYMEX Futures Prices and the Link to the California Market
• Wholesale gasoline purchases are typically contracted for delivery at a future date based on a futures exchange price from the NYMEX.
• Large increases in NYMEX futures prices are often due to a real or perceived scarcity of product.
• NYMEX futures prices spiked following Hurricanes Katrina and Rita.
• The price of wholesale (25,000-barrel minimum) transportation fuels purchases (spot pipeline prices) spiked with NYMEX futures prices following the hurricanes.
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CALIFORNIA ENERGY COMMISSION
Notes - Branded and Unbranded Wholesale Gasoline Prices
• California has a large number of “vertically integrated firms” that control oil production, refining, and distribution of transportation fuels. These companies supply the majority of gasoline to branded stations.
• High volume independent retailers rely on unbranded wholesale purchases to provide discounted gasoline.
• Following Hurricane Katrina, unbranded wholesale gasoline prices rose significantly above the branded wholesale prices.
• Wholesale prices of gasoline delivered to retail stations (dealer tank wagon prices) show a strong correlation with retail prices following Hurricane Katrina.
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CALIFORNIA ENERGY COMMISSION
Notes - Retail Gasoline Prices
• California retail prices peaked with U.S. retail prices following Hurricane Katrina.
• U.S. prices had more volatility than California prices due to the greater impact of the hurricanes in other regions.
• California retail prices have not declined as rapidly as those of the U.S.
• U.S. and California differentials have stabilized back to pre-Katrina levels.