California has long been known as the country’s priciest place to fill up your tank, but these days the Golden State is “completely out of whack.”
As gas prices plummeted around the nation in recent weeks, California’s price at the pump has rebounded with a vengeance to an average of $5.58 a gallon.
That’s $1.89 more than the national average — the highest price gap in at least 22 years, according to a Bay Area News Group analysis of AAA data.
While Russia’s invasion of Ukraine drove prices higher around the world, California’s perplexing price swing is largely due to the local oil industry, experts say, which is putting the state on another planet when it comes to gas.
“The commodity price of gasoline in California has gotten completely out of whack,” said Severin Borenstein an energy economist at UC Berkeley. “If this holds, we’re just starting to see the increase. It’s going to go up even more.”
Average prices in the Bay Area are even higher, with San Francisco drivers closing in on $6 a gallon, and many commuters are desperately waiting for gas rebate checks from the state, which are set to hit most bank accounts in October. Although fuel costs are still down from their peak in June, drivers are contending with nearly seven months of average prices topping $5 a gallon.
“It’s unfair,” said Sonya Khvann, a single mother of three, who was pumping gas in Alameda on Friday. She spends about $800 a month on fuel shuttling around her children. “It’s not like you can change your career overnight,” said Khvann, a part-time real estate agent. “Not everyone can be in tech.”
Much of California’s high gasoline costs are explainable. The state’s 54-cent gasoline excise tax is among the highest in the country — only Pennsylvania’s is higher. There are also stricter environmental regulations and special fuel blends that prevent rampant smog from accumulating in cities. Altogether these factors tack on roughly $1.20 to California’s gas prices.
But the widening gap between what everyone from San Jose to Los Angeles is paying compared to the rest of the country is due to the concentrated nature of California’s oil refineries, experts say. Due to the state’s special gas blend, California is often termed a “fuel island” because nearly all gas sold in the state is refined locally by a handful of companies, including Chevron, Marathon Petroleum and PBF Energy. That means mechanical hiccups at refineries can cause major price spikes not seen elsewhere in the country.
Tom Kloza, of the Oil Price Information Service, said the reduced flow of gas is likely due to refiners bringing equipment offline for maintenance. He said much of the oil industry deferred regularly scheduled maintenance in spring so they could continue reaping record profits during the energy price spike following the Russian invasion.
But it’s hard to get to the bottom of exactly why California’s oil refiners have reduced output now just as prices drop elsewhere. There has been no major refinery outage or catastrophe reported in recent months. Instead, experts glean information from oil production reports. “Because of antitrust regulations, we don’t know how individual refineries are operating,” said Kevin Slagle, vice president of the Western States Petroleum Association.
In a statement, the California Energy Commission said state refineries are seeing “temporary” production issues, which coupled with maintenance activity and “lower-than-normal gasoline inventories,” is driving the current price spike over the past four weeks.
The mysterious price surge comes as California Gov. Gavin Newsom has turned up the rhetoric against the oil industry as the Golden State moves to phase out most gas-powered vehicles by 2035 and expand restrictions on drilling. In a statement on Friday, Newsom’s office accused fossil fuel companies of “holding families hostage,” while touting Sacramento’s plan to send up to $1,050 to California families to alleviate the financial pain.
“We’re phasing out the fear of gas prices and ushering in our oil-free future,” Newsom’s office added.
Borenstein, the UC Berkeley economist, has spent years studying the gap between California’s gas prices and the national average. He said the unaccounted-for difference, which he termed a “mystery surcharge,” took off in 2015 when gas prices spiked in the aftermath of a Torrance oil refinery explosion. Before the blast, the unexplainable price gap was about 2 cents, but afterward, it ballooned to over 40 cents and it has remained high ever since.
Kloza, Borenstein and David Hackett, an energy expert at Stillwater Associates, said there is no evidence of racketeering among the state’s oil refineries. There is an ongoing probe into gas pricing and oil industry practices in the State Assembly, however. Sacramento has a long history of accusing the industry of price-gouging and announcing investigations that yield little results.
Still, it is commonly accepted that September has been a bonanza month for California’s oil refiners. “If you’re a [refiner] on the Gulf Coast, your gross profit on gasoline is about $6.60 above the price of crude. If you’re in Los Angeles it’s about $101,” said Kloza. “The difference is incredible.”
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