Multiple factors contribute to California's gasoline prices being significantly higher than those in other parts of the United States. Influenced by the conflict involving Iran, prices within the state are anticipated to surge beyond $10 per gallon. The price of jet fuel in California has already increased by 47% over a two-week period.
California's fuel market is isolated from the rest of the nation due to its mandated gasoline blend formula and a lack of pipeline infrastructure. The closure of the Strait of Hormuz has heightened its reliance on energy imports from Asia.
While the state already has the highest gasoline prices in the country, the situation is expected to worsen. Energy economist Philip Verleger noted that the U.S. West Coast will be a prime example of the consequences of the Iranian attacks. He added that California drivers should anticipate shortages of gasoline and diesel in the near future, with prices potentially surpassing $10 per gallon. Over the past month, the price of regular gasoline in California has risen by more than 18%. According to AAA data, the price reached $5.42 per gallon on Friday, substantially higher than the national average of $3.63. Data from OPIS indicates that since the outbreak of conflict in the Middle East, Los Angeles jet fuel prices have increased by over 47%, reaching an average of $3.85 per gallon.
Verleger stated that if countries exporting fuel to the region impose restrictions or halt shipments to protect their own markets, West Coast states would need to reduce gasoline and diesel consumption by 20%.
The state, once a top oil producer in the U.S., has become increasingly dependent on crude oil and fuel imports in recent years as refineries have closed or shifted to renewable fuels amid the energy transition. Analysts warn that this reliance on crude imports makes the state more vulnerable to supply disruptions. Refineries in China and India have been forced to cut production due to shortages of Middle Eastern crude, with some plants declaring force majeure, a legal measure allowing companies to suspend deliveries under emergency circumstances. Countries including China and Thailand have halted fuel exports. Last year, the U.S. West Coast set a record by importing 128,000 barrels per day of motor gasoline, primarily from South Korea and India. According to ship-tracking firm Kpler, California imports approximately 54,000 barrels per day of jet fuel, nearly one-third of which comes from South Korea. Imports from South Korea are expected to diminish in the short term, while neighboring Washington state has little spare refining capacity.
Data from Kpler shows that West Coast refineries import about 230,000 barrels per day of crude oil from the Middle East, accounting for roughly half of all U.S. imports from that region. Refineries must now seek alternative sources, which will come at a higher cost. Prices for heavy crude have already risen as refineries compete for supply.
Kpler analyst Matt Smith stated, "All crude imports from the Middle East to West Coast refineries are at risk." He added that refineries would be compelled to purchase crude from Canada or Latin America. According to the U.S. Energy Information Administration, Chevron's refineries in Richmond and El Segundo, along with Marathon Petroleum's facility in Los Angeles, were the largest importers of crude oil into California in a recent year. A Marathon Petroleum spokesperson confirmed the company is meeting all contractual obligations but declined to comment on crude procurement and refining. A Chevron spokesperson declined to comment on daily operations but noted its refineries continue to supply customers in the region.
Alternative sources of crude are limited due to strong demand from Asia.
Kpler's Smith pointed out that, constrained by limits on Canada's Trans Mountain pipeline and demand from foreign buyers, West Coast refineries can access a maximum of about 500,000 barrels per day of Canadian crude. Asian refiners may also attempt to purchase more Latin American crude from countries like Ecuador or Guyana.
Smith said, "U.S. West Coast refineries do not have many additional supply options."
An analyst from Rystad suggested that West Coast refineries will try to maximize supplies of Alaska North Slope crude, reallocate Canadian supplies, and potentially purchase Venezuelan crude despite logistical challenges.
Consideration is being given to a temporary waiver of a shipping regulation known as the Jones Act. This law requires domestic crude oil to be transported on U.S.-flagged vessels, which increases the cost of shipping from the U.S. Gulf Coast to California refineries. Such a move could provide some relief from price pressures.
Debnil Chowdhury, Head of Refining and Marketing at S&P Global Commodity Insights, stated, "Due to widespread supply concerns, all other regions now need crude as well. Everyone is scrambling for supply."
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