Gasoline Price Changes - Federal Trade Commission

GASOLINE PRICE CHANGES:
led to higher gasoline prices nationwide. 16 As a result, the predicted prices for Phoenix after the
pipeline break were higher than those predicted before the pipeline break. With lower supply
availability than just before the pipeline first broke, and increased national demand, gasoline
prices in Phoenix would not be expected to return to their pre-pipeline-break levels.
Ripple Effects: Tucson Gasoline Prices. The pipeline break also disrupted gasoline
supplies in Tucson, even though the break was on a pipeline from Tucson to Phoenix. The
pipeline rupture caused the Tucson terminal to experience a major shortage of gasoline storage
capacity. The special-grade “Phoenix-mix” gasoline that normally would have been shipped to
Phoenix had to be stored at the Tucson terminal, thereby reducing available storage capacity.
This reduction in storage capacity led to the temporary shutdown of the pipeline into Tucson,
also reducing the supply of gasoline for Tucson. Both events helped force prices upward in
Tucson, 17 as did the EPA waiver that allowed Phoenix gas stations to use – and to compete with
Tucson gas stations for – conventional gasoline.
Ripple Effects: West Coast Gasoline Prices. The interrelationship between gasoline
prices in Phoenix and on the West Coast is apparent in Figure 1-5. As reflected in this figure,
Phoenix and Los Angeles prices follow the same general trends. For example, Los Angeles
gasoline prices rose following the pipeline break, although they rose less than did prices in
Phoenix. This effect is not surprising – as Phoenix gas stations offered higher prices to win
gasoline from West Coast suppliers, West Coast gas stations also had to offer higher prices to
keep supply in California. Thus, gasoline prices in other parts of California rose as Arizona gas
stations competed to obtain additional gasoline supplies for Phoenix. Even Oregon and
Washington gasoline prices were affected by the Phoenix shortage. Washington refineries
traditionally supply gasoline to both Oregon and California markets, as well as to Washington
markets. The higher prices in California that were necessary to compete with higher Phoenix
prices also caused some Washington refiners to sell more supply than usual in California. This
diverted supply from Oregon and Washington markets and resulted in higher prices in those
states. The additional demand from Phoenix, combined with the already tight California
gasoline market, put pressure on gasoline prices all along the West Coast, forcing those prices
higher than they otherwise would have been.
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FEDERAL TRADE COMMISSION, JUNE 2005