Rising gas prices in California and the Bay Area have been making headlines. That’s perhaps putting it lightly.
With the median gasoline price in the U.S. hovering around $3.66 per gallon at the time of writing, reports that some gas stations in California are now showing prices of more than $7 per gallon for regular are certainly concerning.
Across the entire country, fuel prices have been on the rise since the beginning of April, with California’s average reaching $5.39, according to AAA.
In Central California, prices have soared above $5, with Merced seeing a 50-cent increase to $5.10. This seasonal increase happens almost every Spring due to increased travel, refinery maintenance, and switching to more expensive “summer blend” gasoline.
Various experts have chimed in on this reality, as well as the fact that California mandated the switch to these blends earlier than other states, as reasons for these sky-high prices.
That said, let’s dive into what commuters and anyone who owns a vehicle may want to consider as we head into the summer driving season.
Recent Gas Price Data in California
The statewide average soared to $5.42 from $4.98 a month ago, with a national average of $3.66. In the Bay Area:
- Napa’s average was $5.71
- San Francisco’s was $5.66
- Oakland’s was $5.55
- San Jose’s was $5.51
Analysts continue to monitor the impact of Middle East tensions on pump prices as summer driving season approaches. Some experts suggest the Middle East and Ukraine conflicts have kept the oil market tight. And while relief may come soon, it’s also true that refineries have alternatives to pricier, summer-grade gas.
Experts also expect that refineries will soon finish their maintenance stages and gas production will improve. This will cause prices to tone down a bit in the next few weeks. That’s good news for drivers in California, who continue to see these sky-high prices proliferate.
Due to California’s price surge, refinery issues in companies like Phillips 66 (NYSE:PSX) have shifted to renewable diesel. Scheduled maintenance at two key refineries and speculative buying in global markets skyrocketed wholesale prices.
Current estimates for San Francisco gasoline, excluding taxes and other expenses, sits at nearly a $60 premium per barrel over current crude prices.
On April 5, WTI futures rose above $86 per barrel, with Brent settling above $91 per barrel. Many experts now predict a price correction for gasoline and crude over the 30 days.
California’s Gas Price Gouging and Transparency Law aims to regulate refinery margins, and regulators will discuss specific rules next week. Thus, the law might discourage gasoline importers, exacerbating supply issues when needed.
Why Are Gas Prices Expensive in California?
California has mandated a unique gasoline blend for pollution reduction, which is more expensive. Patrick De Haan, GasBuddy’s head of petroleum analysis, noted a 66% decline in operational refineries over four decades, resulting in fewer producing the unique blend.
According to the California Energy Commission, California’s fuel market is unique. It relies on 11 major refineries within the state to produce its unique blend.
Anlleyn Venegas, a senior public affairs specialist at AAA, explained that only some states use this blend, limiting California’s supply during refinery issues. This isolation results in pump price volatility during outages.
By 2035, California aims to stop selling new gas-powered cars, favoring cleaner vehicles. According to the California Energy Commission, a quarter of new cars sold in 2023 were zero-emission.
De Haan noted that high gas prices likely accelerated the shift toward electric vehicles.
Governor Gavin Newsom’s 2023 law targeted pump price gouging and established an independent watchdog, the Division of Petroleum Market Oversight, to increase industry transparency. De Haan anticipated more discussion of the law’s impact in the coming months.
In 2022, families were shelling out thousands for gasoline. The average annual spending per consumer unit on fuel hit $3,120, rising 45.3% from 2021 due to increased commuting and higher fuel prices. Venegas noted that adopting better driving habits could lead to substantial savings.
What Now
California has one of the most expensive gas prices in the United States. Regular gasoline continues to hover well above $5 per gallon, with some experts suggesting this price could continue to move higher.
Now, most gas stations within California have been selling under $6 per gallon. However, the stocker price of seeing a 6 or 7 in front of your regular gasoline price is bound to cause some shock among consumers.
While consumers may get some short-term reprieve, the reality is that these higher prices don’t benefit consumers at all, and big oil companies will make their profits no matter what.
Taxes are also expected to increase starting July 1, which won’t help the narrative over the medium-term. Those looking to plan a summer road trip in California may want to consider this reality, and travel sooner.
With a current gasoline tax of 59.6 cents per gallon, it’s clear that a significant portion of these higher prices are tied to taxes, but an increase could have a detrimental impact particularly on lower-income groups. It will be interesting to see how economic data come in for this region amid these higher fuel prices.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
