The report, published jointly by PKVerleger LLC and The Brattle Group and written by Dr. Philip K. Verleger, Jr., noted oil market economist and Principal of The Brattle Group, finds several reasons behind the increased instability of California gasoline markets, factors that apply in a less extreme manner to all gasoline markets in the United States.
Spot prices rise when inventories fall and decline when inventories return to normal levels.
The unusual volatility in California prices stems from the state's unique situation. Product sold there must meet the most stringent environmental standards in the world. Interruptions reduce output, which in turn decreases inventories, and that reduction causes spot prices to rise. When these refineries come back on line, product becomes more abundant, and spot prices drop. Since retail prices tend to follow spot prices, they exhibit much the same volatility.