STAFF REPORT

Although gas prices have been rising around the country, California drivers have seen a sharp increase in costs very quickly.

According to AAA data, the average gas price in the Golden State increased by $0.23 to $5.27 per gallon on Friday compared to the same day last week. On Friday, the national average was $3.54 a gallon, an increase of $0.04 over the same time frame.

Refinery issues—including a significant Phillips 66 refiner in the Bay Area that stopped producing gasoline in favor of renewable diesel—are the primary cause of California’s skyrocketing prices, according to Tom Kloza, global head of energy analysis at OPIS.

He stated: “Throw in regularly scheduled maintenance that will occur at two critical refineries in May and the normal penchant for speculative buying in global markets in the second quarter, and you have wholesale prices that have gone ballistic.”

According to Kloza, the price of gasoline in San Francisco is approximately $60 per barrel, more than the current crude prices after deducting taxes and other expenses.

While Brent (BZ=F), the global benchmark price, finished above $91 per barrel on Friday, West Texas Intermediate (CL=F) futures hit $86 per barrel.

Anyone who studies petroleum history can see that these relationships are destined to end, Kloza added. “A correction for gasoline, and perhaps for crude, looms, and it almost certainly will occur in the next 30 days.”

In an effort to limit refinery margins, California approved the Gas Price Gouging and Transparency Law last year. Next week, regulators will get together to finalize the details of particular regulations.

The provisions of the legislation, according to Lipow Oil Associates president Andy Lipow, “may lead some gasoline importers to halt doing business in the state and that could exacerbate the supply situation at exactly the same time supplies from outside the state are needed.”

Due to the state’s unique mix standards, which are more expensive to create than those in other states, California gasoline has historically been more expensive than that of other states. High taxes and fees are also levied in California in connection with efforts to lower carbon emissions.
U.S. gasoline stockpiles have been declining recently, indicating robust demand nationwide.

“We’re getting into summer driving season. We expect gasoline demand to continue to grow. That will drive prices up in the short term,” according to Regina Mayor, global head of clients and markets at KPMG, who spoke with Yahoo Finance recently.

However, if prices rise too much, the mayor anticipates demand destruction to begin. “I understand people need to drive their cars to get to and from work, pick up their children, and take them to school and things of that nature. However, they might think twice about driving over the summer holiday if gas prices reach a level that they deem unacceptable,” Mayor added.