California Gas Prices Projected to Exceed $8 by 2026

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Projected increase in California gas prices amidst refinery closures.

News Summary

A report from the University of Southern California predicts a significant increase in gas prices in California, potentially exceeding $8 per gallon by the end of 2026. This marks a 75% increase from the current average price as refinery closures threaten to reduce supply. The state heavily relies on imports, and several factors, including taxes and geopolitical disruptions, are accelerating this rise in fuel prices. Governor Gavin Newsom’s office is looking to collaborate with refiners to stabilize supplies amidst growing economic challenges for residents.

California is projected to experience a significant increase in gas prices, with predictions suggesting that the cost may exceed $8 per gallon by the end of 2026. This escalation represents a potential 75% increase from the current average price of $4.82 per gallon, as of April 23, 2025. This forecast comes from a report conducted by Michael A. Mische at the University of Southern California’s Marshall School of Business.

The report estimates that the future price for regular gasoline could fall between $7.35 and $8.43 per gallon. Contributing factors to this predicted increase include a series of expected refinery closures, including Phillips 66 in Los Angeles and Valero in Benicia. These closures are anticipated to slash California’s refining capacity by 21% over the next three years, resulting in a potential decrease of 6.6 million to 13.1 million gallons of gasoline per day from California’s fuel supply, which currently relies on over 13.1 million gallons daily.

As it stands, California produces less than 24% of its crude oil needs and heavily depends on imports. Mische argues that there will not be a corresponding 20% drop in fuel demand to counter the reduction in supply, leading to a significant shortfall in available gasoline. Additionally, California is facing a 20% reduction in refinery production capacity, which is equivalent to over half of the total production capacity of Washington State.

Several factors are contributing to the rising gas prices in California. The state has been imposing increasing excise and sales taxes, alongside costs associated with the cap-and-trade program and forthcoming adjustments to the Low Carbon Fuel Standard (LCFS). Furthermore, dwindling in-state oil production and refining capabilities, a lack of necessary incoming fuel pipelines, and an overarching reliance on costly maritime transport are also significant contributors to the rise in fuel prices.

Mische also expresses concerns about the vulnerabilities within the logistical supply chain, pointing out that geopolitical disruptions could further complicate supply issues. The proposed changes to the LCFS alone could potentially hike prices by nearly 10%. Consumers may also face additional costs as gasoline might need to be imported from farther locations such as the Gulf Coast or Asia.

The study serves as a risk assessment, encouraging preparation for future trends in pricing rather than serving as a doomsday forecast. Local gas station operators have begun responding to rising prices, with reports of some stations, like that of owner Ernie Giannecchini, raising prices from below $4 to $4.49 per gallon, still below the current state average.

In response to the projected increase in gas prices and challenges posed by refinery closures, California Governor Gavin Newsom’s office has stated intentions to collaborate with refiners to stabilize gasoline supplies. Meanwhile, Senate Minority Leader Brian W. Jones has raised alarms over a looming energy and economic crisis linked to the refinery shutdowns, underlining the urgency for action.

Critics of Mische’s report cast doubt on its validity, including officials within the Governor’s office, who allege that Mische’s work is influenced by interests linked to Saudi Arabia. However, Mische has refuted these claims, clarifying that his endeavors with Saudi Arabia primarily focused on diversifying their economy away from fossil fuels, not petroleum-centric projects.

Furthermore, the upcoming refinery closures are projected to eliminate around 1,300 direct jobs and approximately 3,000 additional indirect jobs in related sectors. The anticipated rise in gas prices and refinery shutdowns have prompted some consumers to consider seeking alternative modes of transportation, including public transit. Without regulatory changes or decisive intervention, California’s gas prices are expected to continue climbing, posing increased economic challenges for residents.