Why gas prices in California have become “ballistic”

Gas prices have been on the rise nationwide, but for California drivers, they have skyrocketed in a short period of time.

The Golden State's average price at the pump rose $0.23 to $5.27 per gallon on Friday compared to last week. According to AAA data. Meanwhile, the national average was $3.54 per gallon on Friday, up $0.04 over the same period.

Tom Kloza, global head of energy analysis at OPIS, points to refinery challenges as the main reason for higher prices in California, including the important Phillips 66 refinery in the Bay Area that has halted gasoline production in favor of renewable diesel.

“If we add the regular maintenance work scheduled to take place at two important refineries in May, and the natural tendency for speculative buying in global markets in the second quarter, you will find that wholesale prices have reached a significant level,” he said.

Gasoline in San Francisco, minus taxes and other costs, is selling at a premium of about $60 a barrel over current crude oil levels, Kloza calculates.

On Friday, West Texas Intermediate crude futures (CL=F) topped $86 per barrel, while Brent crude (BZ=F), the international benchmark, settled above $91 per barrel.

“Any student of oil history understands that these relations will not continue,” Kloza said. “A correction in gasoline, and perhaps crude, is on the horizon, and will almost certainly happen in the next 30 days.”

Last year, California passed the Gas Price Gouging and Transparency Act, which aims to limit refiners' profit margins. Organizers will meet next week to detail specific rules.

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said Andy Lipow, President of Lipow Oil Associates the law The requirements “may cause some gasoline importers to stop doing business in the state and may worsen the supply situation at the same time that out-of-state supplies are needed.”

Gasoline in California has traditionally been more expensive than the rest of the country due to state-specific blend requirements, which are more expensive to produce. California also imposes high taxes and fees associated with carbon reduction initiatives.

SAN ANSLMO, CALIFORNIA - FEBRUARY 7: In this illustration, a credit card is used to pay for gasoline on February 07, 2024 in San Anselmo, California.  According to a report by the Federal Reserve Bank of New York, credit card debt in the United States has reached $1.13 trillion.  (Photo illustration by Justin Sullivan/Getty Images)

A credit card is used to pay for gasoline on February 7, 2024, in San Anselmo, California (Justin Sullivan/Getty Images) (Justin Sullivan via Getty Images)

Gasoline inventories in the United States have fallen in recent weeks, indicating strong demand across the United States.

“We are entering the summer driving season. We expect gasoline demand to continue to grow. This will drive prices higher in the short term,” Regina Mayor, head of global clients and markets for KPMG, recently told Yahoo Finance.

However, Mayor expects demand to start being destroyed if prices rise significantly.

“I understand that people need to drive their cars to get to and from work, to pick up their children, to take them to school and things like that. However, they may think twice about driving during the summer holidays if fuel prices reach a level they consider unacceptable,” the mayor said.

Ince Ferry is Yahoo Finance's chief business correspondent. Follow her on Twitter at @ines_ferre.

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