California Gasoline Prices Skyrocket Amid Nationwide Rise
California’s Pump Prices Surge
Gas prices have been on the rise nationwide, but for California drivers, they’ve skyrocketed in a short amount of time. The Golden State’s average at the pump surged by $0.23 to $5.27 per gallon on Friday from a week ago, according to AAA data. Meanwhile, the nationwide average sat at $3.54 per gallon on Friday, up $0.04 during the same period.
Refinery Challenges to Blame
Tom Kloza, global head of energy analysis at OPIS, points to refinery challenges as the main culprit for California’s surging prices, including an important Phillips 66 refiner in the Bay Area halting gasoline production in favor of renewable diesel. Kloza calculates gasoline in San Francisco, less taxes and other costs, is selling at a premium of almost $60 per barrel more than current crude levels.
Market Speculation and Maintenance
Gasoline prices have been affected by the normal penchant for speculative buying in global markets in the second quarter. Moreover, regularly scheduled maintenance will occur at two critical refineries in May. These factors have contributed to the significant increase in wholesale prices.
Price Correction on the Horizon
“Any student of petroleum history recognizes that these relationships won’t persist,” said Kloza. “A correction for gasoline, and perhaps for crude, looms and it almost certainly will occur in the next 30 days.”
Regulatory Measures and Imports
Last year, California passed the Gas Price Gouging and Transparency Law, aimed at keeping a lid on refinery margins. Regulators will meet next week to iron out the details for specific rules. However, some experts, such as Andy Lipow, president of Lipow Oil Associates, suggest that the requirements of the law may lead some gasoline importers to halt doing business in the state. This could exacerbate the supply situation, especially at a time when supplies from outside the state are needed.
California’s Unique Factors
California’s gasoline has traditionally been more expensive than the rest of the country due to the state’s special blend requirements, which are more costly to produce. Furthermore, California imposes high taxes and fees associated with initiatives to reduce carbon emissions.
Gasoline Demand and Consumer Influence
Gasoline inventories in the US have been falling in recent weeks, indicating strong national demand. While gasoline demand is expected to continue growing as summer driving season approaches, Regina Mayor, KPMG global head of clients and markets, believes that demand destruction will kick in if prices get too high. Consumers may think twice about driving over the summer holiday if gas prices reach a level they deem unacceptable.
About the Author
Ines Ferre is a senior business reporter with extensive experience in the energy sector. Follow her on Twitter @ines_ferre.
