According to AAA, the current national average price of regular-grade gasoline is approximately $3.80 per gallon. In some areas of the country, consumers are paying close to $4 per gallon, but for residents of California, the prices are much higher. In California, the average price is approximately $4.61 per gallon, 21% higher than the national average. Why is the price of gas higher in California?

Different Gas
In the mid-1990s, California started requiring a higher grade of gasoline to help fight air pollution. In order to meet the new standards, refiners had to install costly upgrades, forcing many to leave the state. This left only a small number of refiners to provide the special blend for the state. In normal environments, the cost to California drivers is usually 25 cents higher per gallon compared to drivers in other states, but the problem is more complicated than this.

Refiner Problems
Because there are a relatively small number of refiners providing gasoline to California, when one experiences problems, supply disruptions can have a large effect. The Chevron Refinery near San Francisco provides a significant amount of gas to Californians. Its normal refining capacity is nearly 243,000 barrels per day, but in August a fire at the facility resulted in a significant drop in production. The Kettleman-Los Medanos pipeline, which carries 85,000 barrels of crude oil to the San Francisco Bay area, was closed in September because of contamination, and a 149,000-barrel-per-day refinery near Los Angeles was shut down in early October due to a power outage. These disruptions, along with a limited pipeline infrastructure in the state, have caused supply difficulties which have contributed to the rise in prices.

Emotional Buying
When California consumers heard about the spike in gas prices, they did what Wall Street investors know not to do: they bought at the highs. Fearing that prices would continue to rise, "NBC News" reported that consumers rushed to fill their tanks, fearing much higher prices were on the way. This, according to experts, only serves to drive prices even higher as limited supply cannot meet the outsized demand.

Conspiracy Theories
When energy prices rise unexpectedly, theories of manipulation are quick to surface. The Washington Post reports that state refiners may be holding back supply of the special blend gasoline to drive prices higher in order to increase margins. Although just a theory, the report notes that any such manipulation is difficult to prove, and there is no law preventing it.

The Blends
To help curb the sharp spike in gas prices, on Oct. 7, California governor Jerry Brown ordered the California Air Resources Board to allow winter blend gasoline to be sold immediately instead of the normal Oct. 31 switch from the summer blend. The two blends evaporate differently in order to minimize smog at different times of the year. If the winter blend hits the market sooner, supplies should increase and bring prices down to levels more in line with the national average.

The Bottom Line
Californians have experienced record high gas prices, likely as a result of a perfect storm of factors coming together to take the state by surprise. Because of recent action by Governor Jerry Brown, prices should return to normal levels. When energy prices suddenly rise, calls for investigations of energy manipulation come from multiple sources. Although this appears to be a short-term bounce based on real factors, proving market manipulation is difficult. Experts advise consumers to make lifestyle changes to deal with short-term price spikes. Large scale purchasing only serves to drive prices higher when the product is in short supply.

Related Articles
  1. Investing

    3 Cheap Dividend Growth Stocks for Your Portfolio

    Top dividend growth stocks to add to your portfolio.
  2. Entrepreneurship

    Top 4 Billionaires Living in Los Angeles

    Learn how these multibillionaires built their fortunes to stand out from the crowd of the countless ultra-rich who call Los Angeles home.
  3. Entrepreneurship

    How an Internet Sales Tax Will Affect Your Small Business

    Learn about how the Marketplace Fairness Act may impact small business owners should it pass in the House and what the act requires from business owners.
  4. Savings

    Craft Beer Clubs – Bargain or Not?

    If you're an aficionado of artisanal brews (or would like to be), a beer club can be a palate-pleasing, albeit pricey, way to expand your hops horizon.
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Stock Analysis

    Has Urban Outfitters Lost its Way? (URBN)

    Urban Outfitters just made a bold move. Will it pay off?
  7. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  8. Savings

    Are Wine Clubs Worth It?

    Some points to consider, before committing to a membership for yourself – or as a gift. The right club can also help you save money over the holidays.
  9. Stock Analysis

    Kohl's: Should You Stock Up or Sell? (KSS)

    Many traders are bearish on Kohl's, but long-term investors might want to take a closer look for this simple reason.
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. Where can you buy NetSpend reload packs?

    You can only purchase NetSpend reload packs at Giant Eagle, Albertsons, Roundy's and Pathmark supermarkets. NetSpend cards ... Read Full Answer >>
  2. How much money does California make from unclaimed property each year?

    The state of California has estimated that its general fund will earn $442 million from various unclaimed properties. As ... Read Full Answer >>
  3. What does marginal utility tell us about consumer choice?

    In microeconomics, utility represents a way to relate the amount of goods consumed to the amount of happiness or satisfaction ... Read Full Answer >>
  4. What are some common ways product differentiation is achieved?

    There are many ways to achieve product differentiation, some more common than others. Horizontal Differentiation Horizontal ... Read Full Answer >>
  5. What is the difference between an OEM (original equipment manufacturer) and a VAR ...

    An original equipment manufacturer (OEM) is a company that manufactures a basic product or a component product, such as a ... Read Full Answer >>
  6. Is the retail sector also affected by seasonal factors?

    Generally speaking, the retail sector is highly seasonal. Almost invariably, sales in the retail sector are highest in the ... Read Full Answer >>

You May Also Like

Trading Center