Now that California’s gasoline refiners have gotten over the MTBE/ethanol inventory hump that drove prices up this spring, refinery maintenance is contributing to stopping the decline in gas prices that ensued.

In an environment in which fuel regulations balkanize markets, fuel in one place is no longer substitutable for fuel in another. That balkanization re-introduces price disparities that competition naturally diminishes through opportunistic arbitrage, and because it is the consequence of the application of blunt, inflexible regulatory instruments, the natural diminution of price disparities is cut off at the knees. Thus wholesale fuel markets become less resilient and less able to absorb unanticipated shocks such as pipeline mishaps, fires, etc.

We have this problem in Illinois too. At least for us, though, the ethanol is just downstate, so the transport costs aren’t so obscene. That doesn’t make it right, though.