Explaining Southern California's economy

Map: Search for gas prices in L.A. Why do they vary so much?

Los Angeles Gas Prices provided by GasBuddy.com
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According to GasBuddy.com, the average price for a gallon of regular gas in Los Angeles is now up to $4.10, an increase of about a penny since yesterday. But in the area, you can buy a gallon of 87 octane for as little as $3.78 — or as much as (almost) $5.

Why so much price variation?

I called Patrick DeHann, a senior petroleum analyst at GasBuddy.com, for some insight. He gave me plenty.

The disruptive event is obviously the Chevron Richmond refinery fire, which took out some portion of roughly 15 percent of the specially forumulated, cleaner-burning fuel that California law requires (DeHann pointed out — and this is backed up by some of the reporting I've seen — that Richmond isn't completely offline). But what's really causing price volatility is the wholesale market. That is, the place where gas stations — retailers — go to buy their gas.

"Wholesale costs are all over the map," DeHann said. "Stations are trying to figure when to buy. It's like roulette. Stations have to bet and if they bet wrong, they're stuck."

DeHann also noted that prices well above the average can be due to the relative affluence of an area. More income equals more ability to pay. Competition can be a factor, as well. If an area has a cluster of stations, they'll compete on price. More solitary establishments can charge more.

That said, he doesn't see any real price-gouging in the current situation. 

"If there's a station that charging a price that's much higher than a neighboring station, that could be gouging. But when everybody is charging a higher amount, that's not gouging."

He also said that some relief for beleaguered Southland motorists is on the horizon, even though it looks as if the Richmond refinery won't be fully restored to full capacity for months.

"Wholesale prices have already come down a bit as emotions have cooled off. And after Labor Day, motorists will get a break. People will be driving less and that should bring prices down slightly."

Previously:

Why is BP selling its refinery in Carson, Calif.?

After the Chevron refinery fire, gas prices in Los Angeles are rising fast

Follow Matthew DeBord and the DeBord Report on Twitter. And ask Matt questions at Quora.

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