Why gas prices in Calif. are much higher than the U.S. average
LOS ANGELES – Californians are used to gyrating gas prices, but the latest swing from the lowest in years to nearly a dollar above the national average is leaving drivers in a tizzy.
Some are accusing oil companies of manipulating prices. The industry blames an explosion and a strike at two refineries. Academics say it’s structural — the unique way California gets and sells gas, the Los Angeles Times reported.
They may all be partially right.
On Jan. 30, Californians paid an average of $2.43 for a gallon of gasoline, the lowest since May 2009, according to fuel tracking group GasBuddy.com. It shot up 93 cents in a month and has since been fluctuating around $3.20, nearly 80 cents more than the national average.
The price uptick began shortly after Tesoro Corp. idled its Martinez, Calif., plant amid a nationwide walkout by union members. And on Feb. 18, an explosion at Exxon Mobil Corp.’s Torrance facility left four workers injured and the refinery unable to operate at full capacity. Federal investigators from the U.S. Chemical Safety Board are investigating the refinery blast.
Oil companies said market conditions such as supply and demand guide pump prices. In an email, Tesoro spokeswoman Tina Barbee also listed the cost of crude oil, distribution and marketing costs, refining costs and federal and state taxes as factors. The strike pushed up its operating costs to as much as $7.95 a barrel in California, the company said last week.
But consumer advocates allege refiners are fixing prices, exploiting the disruptions to pad their profits.
State senators held a joint committee hearing last week in Sacramento wanting to know why gas prices had risen so much so quickly.
“If we’re only paying about 20 to 30 cents more for gasoline typically, why is it translating now to a whole dollar more?” asked Sen. Ben Hueso (D-San Diego), who chaired the hearing. “We want to know if we don’t have a competitive-enough market in California to keep prices low.”
On most days, gasoline in California costs more than it does in other states.
That’s partly because California is considered an island in the industry, cut off from other oil-producing regions by its stringent environmental rules and a dearth of interstate pipelines.
To improve air quality, the state limits the type of gasoline to a specially formulated blend commonly known as CARBOB. The blend, too expensive for most outside producers to make and deliver, is largely created within the state.
Before California adopted its special gasoline blend, refinery-level wholesale prices in the state averaged an inflation-adjusted 6 cents above the national average. From 1996 to 2014, they averaged 16 cents higher, according to Severin Borenstein, an economics professor specializing in energy markets and regulation at UC Berkeley’s Haas School of Business.