This week's Global Market Analysis takes a look at California gasoline and how the states decision to bring the winter grade transition forward by several weeks has resulted in pricing drops.
It's clear to see that California gasoline is dropping and will fall more
By Jeffrey Bair
Maybe a crystal-clear California sky isn’t more important that keeping fuel prices down.
California state officials last month decided to bring the transition to winter grade gasoline forward by several weeks as a money-saving measure. Beforehand, the spot price of gasoline in Los Angeles had climbed to more than $2 a gallon above RBOB futures in New York on the back of scattered supply and production issues. In contrast, the most-traded gasoline in Houston barely got to 10 cents over futures in the same time. Pump prices regularly got over $6 a gallon this summer in parts of the Golden State.
On one hand, one might question the wisdom of relaxing pollution standards during an international health crisis that killed hundreds of thousands. On the other hand, the California Air Resources Board said this:
“Any impacts on air quality caused by this action are expected to be minimal and outweighed by the public interest in temporarily relaxing the RVP limits.”
Dirtier burning, high-RVP gasoline is cheaper to produce than summer grades.
The market has offered its opinion already. This week Los Angeles gasoline has dipped to 80 cents a gallon over futures, according to General Index data. More drops are likely ahead. Relaxing RVP standards have proved to be an antidote to price pressure brought on by low regional inventory.
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