Analysis: More Pain in CA if Gas Stays Costly Until 2027


   
Kristina Davis
DTN Refined Fuels Market Reporter

   MIAMI, FL (DTN) -- Californians are likely to face more pain at the pump 
than U.S. drivers elsewhere if gasoline stays costly until next year, as 
refining peculiarities and tightening supply add to the state's 
disproportionate fuel pricing.

   The outlook comes as U.S. Energy Secretary Chris Wright acknowledged this 
week that relief at the pump may not arrive soon, saying drivers as a whole 
"may not see gasoline below $3 per gallon again until 2027." 

   The below-$3 gallon average for U.S. gasoline was true prior to the 
end-February outbreak of the Iran war. Since then, pump prices have risen more 
than $1 gallon, peaking at a 2026 high of $4.123 last week before moderating to 
$4.044 this week.

   California prices were, however, well above $3 gallon even before the war, 
averaging $4.34 at end-February. This week, gasoline in the state stood at 
$5.32 gallon and at $4.93 in the broader West Coast. In some parts of Los 
Angeles, gasoline was also already reported at $8 gallon earlier this month.

   University of Southern California business professor Michael A. Mische says 
in a study that California prices could climb even further in the coming months 
as the state's refining capacity declines and supply disruptions come to a 
head, pushing average prices to between $7 and $8 gallon.

   The warning reflects a fundamental shift in the West Coast fuel market. 
According to the U.S. Energy Information Administration, California is set to 
lose about 17% of its refinery capacity over a short period due to planned 
shutdowns, a reduction that is expected to increase price volatility and 
tighten supply across the region. 

   Two major facilities are central to that transition. The closure of Phillips 
66's 139,000 bpd Los Angeles refinery has already removed a key source of 
gasoline production, while Valero Energy plans to idle its 145,000 bpd Benicia 
refinery later this year.

   Together, the facilities represent a significant share of California's fuel 
supply and are expected to increase reliance on imports from overseas 
refineries capable of producing California-grade gasoline.

   Market participants say the immediate impact may be heightened volatility. 
One U.S. West Coast gasoline trader said the region is likely to experience 
higher prices and more frequent price swings this year, pointing to refinery 
disruptions and flaring events tied to operational adjustments and maintenance.

   With fewer refineries operating in California, even routine outages can 
translate into tighter supply conditions and faster price increases at the 
wholesale level.

   Recent inventory declines have reinforced those concerns. Californian 
gasoline stocks recently fell to multi year lows amid supply disruptions and 
slower imports, underscoring how quickly the market can tighten when supply 
chains are strained.

   The Iran war and the resulting blockade of the Strait of Hormuz -- a major 
waterway for energy shipments -- complicates matters further for West Coast 
refiners who rely inordinately on Middle East oil imports.

   For policymakers and consumers, the message is increasingly clear: Shrinking 
refining capacity, import dependence and global supply risks could combine to 
keep gasoline prices elevated and more volatile in California than elsewhere in 
the U.S.




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