In February, few could have guessed that a brief fire at a refinery in Cherry Point, Wash., would have a more dramatic effect on U.S. gasoline prices than the threat of war in the Middle East or a historic boom in domestic oil output.
Yet three months later, with the BP plant barely back in action, West Coast motorists are paying a record premium for their gasoline relative to the rest of the country, even as sinking global oil prices curb costs at the pump.
In California, drivers are ponying up 55 cents a gallon more than motorists in neighboring Arizona.
The historically wide discrepancy is driven by a combination of factors specific to the West Coast: higher crude oil costs; California's ultra-clean gasoline specifications; the absence of alternatives; and the second-highest tax rate in the nation.
But it also highlights the peculiarities of the U.S. gasoline market at a time of unprecedented change in the country's oil flows. The rise of ethanol, the discovery of North Dakota shale oil, the collapse of the East Coast refining sector and the lack of pipeline capacity to adjust to these changes have roiled traders -- but brought few changes to the usual disparities in gasoline prices from one state to the next.
As U.S. drivers hit the highway this Memorial Day weekend, they will find that a years-long glut of Midwest crude is failing to generate cut-price motor fuel in the heartland; months of angst over shut-down refineries on the East Coast have failed to translate into a spike in local prices.
Even so, the economic burden of near $4-a-gallon gasoline is not evenly shared. The West Coast is bearing more than its fair share of the pain while refiners near the Rockies region gorge on cheap, local crude, yielding a glut of inexpensive fuel.
In an election year when the finger-pointing for high energy costs has started early and votes from so-called swing states will hold the limelight, pundits on all sides of the energy issue are sure to seize the subject.
About 30.7 million people will drive 50 miles or more away from home between May 24 and 28, travel group AAA forecast last week, a slightly more than 1 percent rise from a year earlier. The government projects that U.S. summer gasoline prices will average $3.79 a gallon, up 8 cents from last year.
The push and pull of increasingly disparate prices from one state to the next may make it even more difficult to gauge the impact on consumption in the United States, whose gasoline demand accounts for a tenth of the world's oil use.
At 8.63 million barrels per day, gasoline demand last week showed its weakest level for May since 2003, according to the latest data from the Department of Energy.
"The overall tone in the gasoline market is that we've already reached the highest point and prices will continue to drop," said Ben Brockwell, director of data, pricing & information services with Oil Price Information Service (OPIS).
"That's making people wonder if we're going to see any kind of demand rebound this summer," he added.
Here are some snapshots of the market dynamics influencing prices in key U.S. regions:
West Coast: Energy island
Had the Cherry Point blaze started in any of the refineries that flank the Houston Ship Channel or the Louisiana coast, its effects would have been short-lived. Retail prices rarely budge on account of outages in the Gulf Coast, which has produced a surplus of refined fuels for at least two years and is home to more than 40 percent of U.S. refining capacity.
But California, home to the nation's largest refining industry behind Texas and Louisiana, has little spare capacity and no readily available alternative supplies.
Few refiners in the world can produce the California Reformulated Gasoline Blendstock for Oxygenate Blending (CARBOB). Even if they could, there are no fuel pipelines from the Rocky Mountains or the Midwest to the coast, and tanker deliveries from Asia or the Gulf Coast take weeks.
"California refiners are required to make the most expensive type of gasoline in America, in fact, in the planet, with those specifications," said Charles Drevna, president of American Fuel and Petrochemical Manufacturers.
"Given their crude slate, they've made themselves into an island," he added.
California, the world's ninth-largest economy, also levies a steep 69-cent tax per gallon on fuel sales, second only to New York, according to the American Petroleum Institute.
Its refineries depend increasingly on pricier crude from South America and the Middle East, as Alaskan output has declined to its lowest in at least 30 years.
Even before Cherry Point, the region was bracing for tighter gasoline supplies.
"There was already an expectation that the spring turnaround season would be higher than normal due to planned events. The addition of the unplanned outage at BP Cherry Point really tilted the scales," said David Elpers, analyst at energy research firm IIR Energy.
About 7.3 percent or some 224,000 barrels per day of West Coast refining capacity will be offline in the second quarter, much more than the usual 5 percent outage rate, according to IIR Energy data and projections.
West Coast gasoline stocks have dropped to their lowest on record for May, just before the peak-use driving season starts, weekly government data released on Wednesday showed.
At $4.33 a gallon on Wednesday, California had the most expensive retail gasoline among the lower 48 states, data from AAA, the travel group, showed. Overall West Coast gasoline prices last week were 61 cents above the national average, the biggest gap on record, according to government data.
South Carolina offered the cheapest gasoline in the country at $3.34 a gallon.
Midwest: Trappted crude
About two-thirds of the pump price of gasoline is tied to crude oil costs, according to the Department of Energy. Another 15 percent covers refining margins, 11 percent is state taxes, and the remaining 8 percent goes to transportation costs.
So it is natural to expect cheaper gasoline in the Midwest, where a glut of crude from Canadian sands and U.S. shale outposts sits trapped awaiting new pipelines.
That surplus caused a growing glut to develop at the Cushing, Oklahoma oil storage hub, the southernmost point to which a producer can easily ship excess oil and the delivery point for the U.S. crude futures contract. A pipeline that began pumping last weekend will ultimately help ease that oversupply.
As a result, a record gap has opened between U.S. benchmark crude and pricier European Brent, as wide as $28 a barrel in October last year.
This has failed to translate into bargains at the pump for Midwest drivers for one reason -- no matter how cheap the crude is, local refiners still can't make enough gasoline.
Midwest motorists consume about 13 percent more gasoline than the region's refineries produce. So, gas stations pull gallons up the Magellan, Enterprise and Explorer pipelines from the Gulf Coast hub, illustrating an immutable law of commodity markets: it's the marginal barrel (or gallon or bushel) that determines the final price.
Too many barrels and prices can crash; too few and consumers are forced to pay up across the board to get access to the last drop. Transit through the main pipelines alone can add as much as 4 cents a gallon, according to Midwest traders.
"It's always that last barrel in that dictates the price at the pump. You still need to attract imports of gasoline from the Gulf Coast and that means your gasoline price has to be as high as or higher than it is in the Gulf Coast," said Jan Stuart, head of energy research at Credit Suisse.
"I think most of the difference in the crude cost accrues to the refiner and not to the consumer," he added.
While doing little for the nation's drivers, the surge in crude output has made big winners out of Midwest refiners, who paid about $97 per barrel for the crude they processed in February, 9.45 percent lower than the national average, according to data from the U.S. Department of Energy.
Refiners are sucking up the discount. Marathon Petroleum , the largest in the Midwest, saw its 2011 net income surge nearly four-fold to $2.39 billion.
Profit margins have since ballooned to more than $31 a barrel as of last week, according to Credit Suisse, and yet gas stations in Illinois sold the ninth most expensive gasoline in the United States on Wednesday. Other Midwest states hovered in the mid-ranges in terms of costs at the pump.
On average, retail prices of regular gasoline in the Midwest -- known as the PADD II region -- were only 2.4 percent lower than the national average in the week ending Monday, government data showed.
Rocky Mountains: Big winners. briefly
If California is an island, the Rocky Mountain states are a cul-de-sac, benefiting from an occasional surplus of crude and fuel supplies with nowhere else to go.
Unlike Gulf Coast refiners, which can export record volumes of gasoline as well as shipping it into the Midwest, refiners in the Rockies produce gasoline solely for regional consumption. Such localized output, and the region's strategic location at the confluence point of five major fuel pipelines, has given drivers from Denver to Cheyenne relief at the pump.
Rockies gasoline prices in February and early March fell to a record 57-cent discount to the rest of the country as cheap discounts in Canadian crude coincided with active refinery runs. It helps that Wyoming has the nation's second-lowest tax rate at 32.4 cents a gallon; only Alaska's is lower.
The surge in production from Canada and North Dakota has also given Rockies refiners enough reason to run full force. On average, they paid the least amount for their crude in February at $92.36 a barrel, Energy Department data shows.
Only about 7,000 bpd of refining capacity in the Rockies was offline in the first quarter, a third as much as usual, data from IIR Energy shows. But second-quarter outages will be more than the five-year average, the data shows, helping explain why retail gasoline prices have quickly returned to average levels.
East Coast: Blues
As the mid-continent refining industry booms, disaster has struck on the East Coast, dramatically reducing supplies.
Amid rising global competition and falling local demand, more than 2.1 million barrels per day of refining capacity on the Atlantic Basin has either been shut or is at risk of closure, a record culling of excess capacity that has fueled fears of a potential summer shortage of gasoline.
The alarms have sounded in the White House, where President Barack Obama is fighting attacks over high fuel prices as he seeks reelection.
Delta Air Lines' surprise deal to buy an endangered Pennsylvania refinery aside, the outlook is grim for U.S. East Coast refiners, which lack easy access to cheap U.S. oil and are having to buy costlier North Sea and West African crude. Even the airline's new plant will not be revived in time for summer.
Despite grave concerns over supply, however, New York and Pennsylvania gasoline prices are yet to break through the roof. With the exception of New York, which has the nation's largest taxes on sales at 69.6 cents a gallon, gasoline prices have stayed below $4 a gallon in East Coast states.
East Coast gasoline prices briefly reached a record 22-cent premium to the rest of the country in late February, due in part to the slump in the Rocky Mountains -- but have since reversed course to a discount against the national average.
The reason? Plentiful alternatives and the advantage of being the trading hub for U.S. fuels.
"There's a good deal of imports and refining capacity in Canada that supplies the East Coast and the futures market there promotes inventory building," said Philip K. Verleger, an oil markets analyst.
Futures contracts for reformulated gasoline traded on the New York Mercantile Exchange stipulate sellers will deliver gasoline barrels at the New York Harbor.
East Coast drivers can also thank Colonial Pipeline, the major conduit for refined fuels from the Gulf to East coasts, for quickly expanding its capacity to meet the region's needs.
"Six months ago, experts said gasoline prices could hit $5 a gallon this summer," John Felmy, chief economist at the American Petroleum Institute, said. "They've stopped making those predictions."