Why Gas Prices are Skyrocketing in California

Video why is gas prices so high in california

Californians are currently experiencing a massive surge in gas prices, and it’s not just due to your typical market fluctuations. Tropical Storm Hilary wreaked havoc in Southern California, causing widespread flooding, power outages, and significant damage. As a result, the average price of gasoline in the Golden State skyrocketed by $0.11 last week, reaching an eye-watering $5.26 per gallon. This is the highest level recorded throughout the entire year for the nation’s most expensive state, according to AAA.

California: The Perfect Storm of Factors

Wondering why California consistently leads the pack in terms of expensive gas prices? Well, it’s not just one thing. California’s unique gasoline blend, which is more expensive to produce, is one of the main factors. Additionally, the state imposes higher taxes and fees associated with initiatives to reduce carbon emissions, further driving up costs.

The Threat of Hilary’s Impact

But it doesn’t stop there. The severe weather and flooding caused by Hilary’s rampage pose a direct threat to California’s refining and distribution systems, amplifying the potential for even higher prices. According to experts, a refinery shutdown due to flooding could increase wholesale gas prices by at least $0.20 per gallon, a cost that would inevitably be passed on to consumers within a matter of days. In addition, the news of a flooding event incites panic-buying among consumers, quickly depleting fuel supplies and intensifying the situation.

The Aftermath and Future Predictions

As the storm subsides and cleanup efforts commence, another factor comes into play: a drop in demand. Tom Kloza, global head of energy analysis at OPIS, warns that the aftermath of a hurricane always results in reduced demand. Kloza predicts that this week’s prices may be the highest Californians encounter in 2023, as demand diminishes and gasoline production ramps up in the last 75 days of the year.

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Nationally, gas prices remain uncertain. Earlier this month, prices hit a 2023 high, sparking concerns about a potential reversal in the downward trend of US inflation. This upward trajectory is largely attributed to the 15% surge in crude oil prices witnessed in July, with West Texas Intermediate (CL=F) currently hovering above $81 per barrel. Michele Schneider, chief strategist at Marketgauge.com, emphasizes the importance of monitoring oil prices, as they will heavily influence the future direction of gasoline prices.

However, the ultimate determinant of where gas prices will go in the coming weeks rests on Mother Nature’s whims. As Andy Lipow of Lipow Oil Associates explains, hurricane activity, particularly in the Gulf Coast, has the potential to disrupt crude oil production and refinery operations. Even a few days of active hurricane activity can lead to a sudden increase of $0.10 to $0.20 in gas prices.

Given all these factors, Californians are advised to brace themselves for a costly ride at the pump. The convergence of California’s unique blend, high taxes, and the aftermath of Hilary’s impact has created a perfect storm that will likely result in some of the highest gas prices seen this year. As for the rest of the nation, it remains a waiting game marked by fluctuations in oil prices and the unpredictable dance of hurricanes.

Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.

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