By Alejandro Lazo, CalMatters
Eleven weeks into the Iran war and a global energy shock, California drivers are paying the highest gas prices in the nation, an average of $6.15 a gallon this week.
The pain at the pump is colliding with California’s ambitious push away from fossil fuels, as refinery closures, supply disruptions and a deepening debate over reliance on imported oil and gas raise new questions about whether the state can keep gasoline affordable during the transition.
Here are five things to know about how Sacramento is responding to the crisis and what it could mean for prices in the months ahead.
California can see six weeks out — after that, prices could rise.
California can confidently forecast gasoline and crude oil shipments coming in through about mid-June, and supply looks stable through that window, Siva Gunda, vice chair of the California Energy Commission, told an Assembly oversight hearing last week.
After that, oil and gas will cost significantly more to secure, he said.
California can outbid the rest of the world for gasoline and crude oil, pulling shipments away from Asia and other markets. But that bidding war comes at a cost, and consumers will pay it at the pump, Gunda told the committee.
To hedge against that uncertainty, Gunda said California is negotiating long-term supply deals with Asian refiners that could lock in another three to six months of certainty.
“Liquidity, in the short-term, is okay,” Gunda said. “As we move forward, it’s really about making sure more ships are coming, more marine vessels are coming.”
As refineries close, imports are filling the gap.
The Iran war has exposed California’s growing reliance on imports of both crude oil and gasoline. The state needs to import more supply as in-state refineries shut down.
Neale Mahoney, a Stanford economist, told the committee that imports can be a benefit. They add competition and lower prices, since newer overseas refineries often produce gasoline more cheaply than California’s.
Other experts agree. UC Berkeley energy economist Severin Borenstein, also at the hearing, said California’s resilience now depends on building out port, pipeline and storage capacity to handle imports, not on bringing new refineries online.
As the war has dragged on, California refiners have shifted crude sourcing away from the Persian Gulf toward Latin America, Alaska and Canada, Gunda said at the hearing last week. The state met about 20% of its refined-product demand through imports in the year before the war began.
“Fundamentally, we have to recognize we are going to have fewer refineries, and the solution is imports,” Borenstein said.
The oil industry says imports are the problem, not the answer.
But the oil industry is pushing back, saying that relying on increased imports is the wrong strategy. California’s fuel system has been “weakened by design” by state policies pushing refiners out of the state, said Jodie Muller, president and CEO of the Western States Petroleum Association — a characterization energy economists dispute.
Because California requires that cars burn a specialized fuel blend, shipments can be tougher to source and take longer to arrive, exposing consumers to delays and volatility every time something goes wrong globally.
“Continuing to move to more and more imports will put this state at more and more risk,” Muller said last week. “If you think we are in a precarious position right now, we will continue to see more and more volatility.”
And the oil industry argues that the playing field is tilted. California refiners face some of the strictest rules in the world, the industry argues, while imported gasoline is produced under far weaker standards before it’s shipped halfway around the world. California requires importers to certify their fuels meet its standards, but the industry argues that foreign producers operate under less stringent environmental rules.
$6.50 or $7-plus? Experts can’t agree.
In the end, what you feel most acutely is the price you pay at the pump. And even the experts aren’t sure where things will land.
Asked what consumers should expect if the conflict drags on, Gunda said California prices will likely settle “under seven, more like $6.50.” He explained that demand starts dropping once gas crosses about $5.50 a gallon, and California is already seeing drivers shift from higher-priced stations to cheaper ones.
Borenstein is less optimistic. If the Strait of Hormuz, the narrow waterway that carried more than 20 million barrels of oil a day before the start of the war, stays closed another 60 days, the price of crude could climb by another $40 to $80 a barrel, he said. Each $40 increase translates into about $1 per gallon at the pump. He called that scenario plausible, and warned there’s almost nothing California policy can do about it.
“Unfortunately, I think that would be a crisis,” Borenstein said. “I know we all hope that doesn’t happen and that the flow of oil resumes, but the reality is we are on borrowed time as we run down inventories.”
Will high gas prices boost EV sales?
California has spent years trying to push drivers out of gas cars. Now sky-high gas prices may be sparking interest in some consumers.
EV sales in California slumped last year after the Trump administration revoked a key federal tax incentive, undercutting California’s plan to steadily replace gas-powered cars with electric ones to meet its climate goals.
Gov. Gavin Newsom is now pushing to revive some of those sales through a new state incentive under negotiation in the budget. It’s too early to know whether pain at the pump is translating into a broad rebound in EV demand. But some consumers are already making the switch.
When gas prices recently climbed past $6 a gallon in Redding, Victor Ireland said his daughter decided there was “no way” she wanted a gas-powered car after watching the family spend more than $140 on a single Sacramento round trip in their minivan.
The search wasn’t easy. EV inventories have dropped across the country since expiring federal tax credits briefly boosted demand. The family searched dealerships across the West, from Washington to Kansas, after his daughter settled on a specific model: the Fiat 500e Giorgio Armani Collector’s Edition. They found a dealer in Utah that could ship the vehicle to California.
Ireland said the soaring cost of gasoline only reinforced his family’s decision. “You just charge it and go,” he said.
The Iraq War has cost the United States an estimated $1.9 trillion to over $3 trillion in long-term expenses. The US inflation is skyrocketing due to rising energy costs, tariffs, and the economic impacts of the ongoing conflict in the Middle East. TRUMP DID THAT!
I appreciate the attempt to blame someone you don’t understand. Take a look at the rest of the country, nowhere has seen the inflation Calif has. Truth is Calif has always been expensive. Has been excessively taxed and overly regulated since way before your scapegoats first term.
Correct. Why is gas $4 in Texas, Mississippi, Louisiana, Georgia while the same gas is $6.15 in CA.? Answer: taxation.
Fossil fuels should be taxed at much higher levels than they are currently, to make up for all the subsidies fossil fuel companies receive, to pay for all the damage they do, and to hasten the transition to clean renewable energy.
KAPO – yeah, taxes are higher in CA. Did you just find that out?
The question you’re ignoring though is why is gas so much higher in ALL states now?
You MAGAts do not like the answer: We are losing the war in Iran.
Sorry to burst you bubble, but gas was the most expensive in 2022, when your buddy Biden was POTUS.
Why?
*been.
Impossible to type in these skinny text boxes on the phone.
KAPO – i never said it was the highest it’s ever neen. Learn to read, please.
Hasn’t peaked yet, KaKaPoo.
Inflation jumped in April to the highest level in nearly three years as surging gas prices due to the Iran war pushed up the cost of many consumer goods. The consumer price index, a key inflation measure, rose 3.8% in April from a year earlier, the U.S. Bureau of Labor Statistics reported Tuesday. That’s up from 3.3% in March. The April data paints a clearer picture of the financial fallout for consumers after what was then more than a month of conflict in the Middle East. “American households are going to continue to struggle trying to manage through this, and that’s going to be the case for the foreseeable future,” said Mark Zandi, chief economist at Moody’s. Crude prices remain above $107 a barrel as of early Tuesday. Food prices increased 3.2% over the last year, according to the CPI data.
“For most families, what matters most is the cost of a gallon of unleaded gas and a pound of beef, and both are up quite a lot,” Zandi said. Beef prices rose 14.8% year over year, according to the CPI data.
TRUMP DID THAT – YOU VOTED FOR IT
No one would expect you to understand global markets or politics Sail. That’s ok, keep doing arithmetic on your fingers and thumbs. I don’t have time to get the crayons out to show you.
Most people are now driving less, and that’s a good thing for the environment. More people are buying EVs, and that’s a good thing for the environment. People are eating less beef, and that’s a good thing for their health and the environment. It’s beyond me why anyone believes that driving less, having less pollution, less traffic, more EVs on the road, and less cattle being raised and beef being consumed are bad things. They. Are. Not.
It must be hard to never actually have anything valuable to contribute.
Irrelevant strawman elitist pablum.
Gas station prices have more to do with what others around the world, especially locally, are willing to pay and less to do with the price of oil. Prices at the pump went up as soon as oil prices did, yet now suppliers admit it takes more that a month for oil all ready paid for to make it to gas pumps, thus prices won’t be coming back down any time soon.
As for the global situation, it’s absolutely gangsta! The USA is choking off non USA sourced oil from the rest of the world via sanctions, blockades and with the unwitting help of the IRGC in the Straight of Hormuz. We are choking off economic flows to non USA oil suppliers. Who benefits? USA based oil suppliers, electric car manufacturers like Elon Musk.
The current situation is absolutely ideal for industry in the USA, but less than ideal for Californians and Europeans. Clearly no one with a say-so this side of the Atlantic is really interested in opening the putatively “closed” Straight. It’s a “them” problem in Eurasia we’re helping them to have. It’s on them to fix it or live with it. So far it’s looking like living with it is largely what’s chosen.
Really, it seems all the Administration is interested in is keeping the IRGC poor, destitute but just alive enough to be able to “make-a-deal” that gives us access to their nuclear stockpile. This is rather than chaos resulting in that “nuclear dust” left in situ for some future terrorist organization to get.
Pull back any sense of “legitimacy” for any action by any nation involved. Think of all actions by all actors (nations) simply as without any justification at all beyond their impact, and it makes things a lot easier to see. It’s a gangsta style confrontation over resources, on a global scale. There is no “high road” or noble cause or right or wrong about it.
The word is strait, not straight.
You seem to think you know what you’re talking about. Not so much.