California Gasoline Stocks Fall to Record Lows as Hormuz Outage Hits

By Nicole Jao

NEW YORK, April 16 (Reuters) – California gasoline inventories have fallen to record lows as fuel prices have soared nationwide in the wake of the war with Iran, and analysts warn that the full effect of “supply disruptions linked to the closure of the Strait of Hormuz has not yet hit the Golden State.”

California motorists as of Thursday were paying an average of $5.86 per gallon, the highest in the United States, well above the national average of $4.09 per gallon, according to the American Automobile Association.

But because the state depends on refined products from Asia, the crisis is expected to worsen, analysts said, making California one of the first places in the United States to feel the supply impact of 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 refineries in the state to ensure an adequate supply of transportation fuels during this volatile period of ‌supply contraction due to the effective closure⁠of the Strait of Hormuz,” agency spokesperson Niki Woodard said.

Statewide gasoline inventories averaged 9.44 million barrels for the four weeks ending April 10, the lowest level in the California Energy Commission’s data set, which dates back to 2005. Those inventories are made up of California gasoline blend stocks, blend components and non-California gasoline.

The state is vulnerable to price shocks because it is isolated from the country’s pipelines, forcing it to rely more on imports from Asia, where refiners import crude from the Middle East and refine it into gasoline and other products used on the U.S. West Coast.

The state average of $5.86 represents a 26% increase since the start of the Iran war, according to AAA. Gasoline prices in California are higher because of taxes and the added cost of producing its unique gasoline blend, developed to reduce the smog that was once a fixture in Los Angeles.

INVENTORY DECREASES

The full effect of declining gasoline and crude oil imports has not yet manifested itself in California’s fuel system, Michael Mische, a 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 fall sharply, the analysis shows. “This will mark the point at which the import shock will become fully visible in terminal supply and ultimately at the petrol pump,” he said.

California’s gasoline inventory drawdown may worsen in the coming weeks, said Susan Bell of Rystad ‌Energy.

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 representing about 20% of California’s refining capacity have closed. Its crude oil inventories totaled 10.09 million barrels, down more than 23% from a year earlier, according to the CEC.

California refineries are stocking up on imported crude oil and gasoline from alternative sources to make up for lost cargoes in the Middle East, Woodard said. “We do not predict a near-term supply challenge.”

As things stand, the agency expects enough inventory until mid-May. Californians consume about 36 million gallons per day.

(Reporting by Nicole Jao in New York; editing by David Gaffen)