Gasoline and oil futures surged Tuesday to the highest prices since May, as traders predicted the damage from a could take months to repair.
The lowest retail gasoline prices of the year may already be behind us, some traders say, especially in light of this incident as well as refinery issues around the U.S. and across the Atlantic in the North Sea.
September RBOB gasoline futures briefly topped $3 a gallon Tuesday, and settled just shy of that mark, near a 3-month high. The more than 2 percent gain in gasoline futures sparked big gains in the oil market, where London-based Brent crude prices jumped over $2 to and WTI oil futures topped $94 a barrel in New York, then settled up more than $1 at $93.67 a barrel.
The fire at the 240,000 barrel per day Chevron refinery in the San Francisco Bay area started around 6:15 pm local time Monday and blazed through the night before being extinguished early Tuesday. Chevron's Richmond refinery produces about 15 percent of the gasoline used by California drivers, says energy analyst Andy Lipow.
Operations at the refinery are expected to be hampered for some time. Analysts say it could take months before the crude distillation unit where the fire broke out is back to normal operations.
The local gasoline market in California saw a swift, steep price surge—far greater than at the New York Mercantile Exchange. Spot gasoline prices soared in San Francisco, spiking over 35 cents to $3.32 a gallon, skyrocketing 12 percent. Prices could climb at least 40 cents in the wake of this incident, says OPIS analyst Tom Kloza.
California spot prices help determine retail prices, which were at $3.86 a gallon for the state-wide average on Tuesday and already higher than this time last year,according to AAA. Due in part to the specific blend, California gasoline prices are always among the most expensive in the country, currently 23 cents above the national average of $3.63 a gallon.(Track commodities here)
Rising Brent crude oil prices, due to tight production in light of maintenance of North Sea refineries, as well as other refinery issues in the Midwest and East Coast, are also helping to support gasoline prices, traders say. On average, retail gasoline prices are up 13 cents, since hitting $3.50 a gallon for the national average a week ago, according to AAA.
"People probably paid the lowest price for gasoline for the year a few weeks ago," says trader Anthony Grisanti of GRZ Energy. "When you add up all of the impact (from refinery issues), prices will keep going up."
Strengthening global oil prices have also aided the rally in the gasoline market. Tropical Storm Ernesto could disrupt oil production and distribution in Mexico this week and a pipeline explosion in Iraq disrupted oil and gasoline supplies to Turkey early Monday. Supply concerns due to tensions with Iran and violence in Syria have also contributed to steady gains in the oil markets for the past month.
Follow Sharon on Twitter: @sharon_epperson