California Gas Prices To Increase Up to 75% in 2026

California is set to lose two major oil refineries, bringing the total decline in refining capacity to 21% in three years. 

This is hardly a surprise. Gavin Newsom and the Democrats in California have been waging a war on oil, and environmental regulations make it nearly impossible to continue doing business in the state while providing reasonable amounts of fuel at affordable prices. 

More info: https://t.co/1cZO2N9vYj

— Brian W. Jones (@SenBrianJones) May 6, 2025

California’s gas prices are already much higher than in neighboring states, with a gallon of gas creeping up to $5/gallon, as much as nearly $2 a gallon more than in cheaper states. The national average price, according to AAA, is $3.15/gallon. 

But by next year, Californians may look to 2025 as a golden age of low gas prices. Due to those refinery closures, prices may rise by as much as 75%.

75%, to as much as $8.43/gallon, assuming oil prices remain in their current range. 

In California, taxes make up a more substantial portion of the price of gasoline, of course. 

Proximity to refineries can have a significant impact on the price of gasoline for obvious reasons, as does California’s regulatory environment. 

But in addition to the expected effects from a disruption in supply, you have to take into account the fact that marginal impacts of supply can have dramatic impacts on prices. Demand for gasoline is relatively inelastic–as prices go up, demand does not diminish as much as might happen with other products. There is no substitute for gasoline, and demand for mobility changes little with price increases. 

You can switch from steak to hamburger if prices increase, but you can’t switch from gasoline to anything else. So a marginal change in cost can cause a dramatic price increase. 

You wouldn’t know it from the rhetoric coming out of Sacramento, but oil is still a big part of California’s economy. Combined with other impacts from the increasing cost of mobility, kissing those refineries goodbye could put a huge burden on everybody. 

Multiple models indicate that the shutdown of the two California-based refineries could possibly place the Golden State in a precarious economic situation and create a gasoline deficit potentially ranging from 6.6 million to 13.1 million gallons a day, as defined by the shortfall between consumption and production. Reductions in fuel supplies of this magnitude will resonate throughout multiple supply chains affecting production, costs, and prices across many industries such as air travel, food delivery, agricultural production, manufacturing, electrical power generation, distribution, groceries, and healthcare. Additionally, a reduction in gasoline production and related price increases will likely have a dragging effect on the growth of California’s GDP, and have a significant impact on the affordability of living in the Golden State, as well as personal and household spending patterns and saving behaviors. The loss of in-state gasoline production will also adversely affect corporate and personal income, sales, and excise tax revenues at a time when California’s budget deficit is estimated to be as high as $73 billion, and state and local government debt at $1.6 trillion.

California has traditionally relied on Washington refineries to make up any shortfall, but refineries in that state are reaching production limits. 

Historically, when California needed gasoline to compensate for its in-state production shortages, it turned to Washington State refineries. However, Washington State’s current capacity of 648,000 barrels a day is less than 40% of that of California’s, and it does not appear that it has sufficient surplus capacity to compensate for the expected reductions in California’s in-state gasoline production and shortfall in daily supplies. In addition to satisfying its own internal demands, Washington State provides gasoline to Oregon. California was once a global leader and ranked fourth in the world in oil production. Today, California accounts for only around 2.5% to 2.7% of all U.S. crude production and is producing only 23.7% of its own in-state needs. For the 1982 to 2023 period, in-state oil production fell by 69% from its peak high in 1985 (398,280) to a historic low in 2023 of 123,947.

The solution will inevitably turn to imports from the Gulf Coast or even Asia, dramatically increasing transportation costs and reducing resilience. 

Add up all the increases in costs imposed by either the closure of multiple refineries and the regulations being contemplated by the California legislature, and prices could go through the roof according to an analysis by the USC Marshall School of Business.

It is a recipe for disaster, and the damage is all self-inflicted.

As I argued earlier today, liberal policies are never, in the least, driven by expected results. Claimed results, yes, but the claims made by proponents of liberal policies are made based on pie in the sky, “unicorn farts will solve the problem” claims. Predictable results are ignored. 

No doubt this study on the impact of California policies on gas prices will be similarly ignored. 

After all, the predictions don’t say what the policymakers want to hear.