San Francisco, California – Gas prices in California have seen a dramatic spike, far surpassing the national average in recent days. On Friday, the average price at the pump in the Golden State soared to $5.27 per gallon, marking a $0.23 increase from the previous week. In contrast, the average nationwide price rested at $3.54 per gallon on the same day, only rising by $0.04 during the week.
The surge in California’s gas prices has been attributed to various factors, with refinery challenges playing a significant role. Tom Kloza, the global head of energy analysis at OPIS, highlighted the impact of a Phillips 66 refinery in the Bay Area ceasing gasoline production to focus on renewable diesel as a key driver of the price surge. Additionally, scheduled maintenance at essential refineries in May and speculative trading in global markets have further exacerbated the situation.
As a result of these challenges, gasoline prices in San Francisco are currently experiencing a premium of nearly $60 per barrel compared to current crude oil levels. This discrepancy has been underscored by the increase in West Texas Intermediate (CL=F) and Brent (BZ=F) futures prices, which surpassed $86 and $91 per barrel, respectively, on Friday.
Experts like Kloza have warned that the existing price relationships in the petroleum industry are not sustainable, predicting an imminent correction in the coming month. In response to the escalating prices, California implemented the Gas Price Gouging and Transparency Law last year to regulate refinery margins, with regulators set to convene soon to finalize specific rules.
Notably, California has historically had higher gas prices compared to the rest of the country due to its unique blend requirements that incur higher production costs. The state also imposes elevated taxes and fees aimed at reducing carbon emissions, contributing to the overall price disparity with the national average. Amidst falling gasoline inventories in the US and increasing demand, experts anticipate continued price hikes in the short term, particularly as the summer driving season approaches.
Regina Mayor, the global head of clients and markets at KPMG, emphasized the likelihood of demand destruction should gas prices reach prohibitive levels for consumers. While demand is expected to rise with the onset of summer and increased travel, concerns over affordability may prompt individuals to reconsider their travel plans during peak holiday periods.