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Wednesday, November 29, 2023

California Gas Prices Surge by 80 Cents in a Month; Here’s the Explanation

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Gasoline prices in California have soared, reaching an average of $6.08 per gallon, marking an increase of about 80 cents or 15% in just one month, according to AAA data. Some gas stations in Los Angeles are even reporting prices near $7.00 per gallon. The average price for a gallon of gas in California is approximately 55% higher than the national average.

Industry analysts attribute these astronomical prices to a combination of factors. A surge in the cost of crude oil, coupled with disruptions in refinery capacity, has created a perfect storm. Timothy Fitzgerald, a professor of business economics at Texas Tech University specializing in the petroleum industry, notes that California’s fuel delivery system operates close to its limits, making it susceptible to even minor disruptions that can lead to significant price spikes.

Crude oil prices recently reached their highest level in over a year, with U.S. West Texas Intermediate futures peaking at about $95, representing a roughly 16% increase in a month. This spike is partially linked to a decision made by OPEC+ in April to cut oil output by 1.2 million barrels per day, removing approximately 1% of oil from the global market. OPEC+ extended these output cuts to the end of the year.

California faces additional challenges due to refinery-related issues. Four of the state’s 14 oil refineries are producing at significantly lower levels than usual due to weather-related damage and necessary maintenance. This combination of decreased crude oil supply and refinery disruptions has contributed to the surge in gas prices.

However, there may be a silver lining for California drivers. Governor Gavin Newsom issued an order easing regulations that prohibit oil refineries from producing a cheaper winter-blend of gasoline until October 31. This waiver allows refineries to immediately produce the winter blend, potentially increasing gasoline supply and reducing prices.

Analysts expect prices to stop rising over the next few days and begin falling by the end of the following week. Patrick de Haan, the head of petroleum analysis at GasBuddy, predicts a drop of about 50 cents per gallon by the end of October. Fitzgerald is more conservative in his estimate, suggesting a modest 10-cent decrease per gallon due to the governor’s order.

While relief may be on the horizon, it remains uncertain whether prices will return to the national average anytime soon. The situation highlights the intricate factors influencing gas prices and the delicate balance between supply, demand, and external factors affecting the energy market.

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