California Gas Prices

A deep dive into the main factors leading to increased gas prices in California.

Posted by Georgio Maroun on April 5, 2021

Californians have become increasingly frustrated with skyrocketing gas prices, especially with all-time highs occurring in the Bay Area and Orange County. Many believed that the latter end of the pandemic would surely cause gas prices to drop, but the opposite has happened.

According to the California Energy Commission, this past week’s gas prices have been the highest in months, with $3.77 for regular, $4.01 for midgrade, and $4.12 for premium fuel, disregarding inflation. For comparison, January 2021 prices never reached above $3.50 in all three categories. So why have the prices increased so quickly?

Per the Pacific Research Institute, Californians have the highest gas prices in the nation, with 50.5 cents per gallon from solely the gasoline excise tax. By incorporating federal taxes and other fees, Californians pay a whopping 82.2 cents per gallon, a number that is only expected to increase. Unfortunately, policy makers are deaf to the cries of millions of Californians suffering during the economic downturns as they feed into the energy mandates of the state. Such unrealistic energy mandates have only driven prices up and discouraged gas companies from shifting towards cleaner energy sources, that, in the long term, “save drivers up to $9.6 billion annually. . . or up to $11 billion based on the sharp drop in gas prices from April 2020.” However, there is a beacon of hope: the California Department of Tax and Fee Administration instituted a policy in 2020, determining that state gas excise taxes are to be evaluated every July 1st. If the California Consumer Price Index maintains its current rate, then the Department of Finance may issue a decrease in tax on July 1st.

Such fluctuating numbers are expected after the economic meltdown and revival that has occurred within the last year. A major contributor is the sudden increase in demand. In the early stages of the pandemic, gas prices were falling by the dollar as less people drove and the severity of COVID was unknown. In a desperate attempt to prevent a deficit, gas stations plummeted their prices; consequently, supply from the refineries decreased. As mandates were lifted, vaccines were made available, and a shift towards normality ensued, gas companies found a sudden increase in demand with an incapability to resupply. Specifically, the Energy Information Administration reported that “demand increased from 7.53 million to 8.11 million barrels a day” without a proportional increase in supply.

Furthermore, certain current events have caused a unique increase in gas prices. Refineries in California, infamous for issues such as spontaneous fires and prolonged cleaning, slow the transportation. Combined with the recent low production of oil in the middle east due to political conflicts, such as that between Qatar and Saudi Arabia, there has been insufficient gas entering the country, uniquely affecting California’s demand for gas. Moreover, the changing gas formulas between winter and summer weathers, a common practice for all gas companies to improve the efficiency of their fuel during particularly high and low weathers, tend to increase prices to compensate for the switch.

Although gas prices have increased at higher rates in California than most other states, prices have negatively impacted the entire nation. Nonetheless, the pandemic is nearing its end, so how will gas prices be affected? Prices are predicted to reach the pre-pandemic level within the next few months as the supply chain steadies out. With gas prices nearing 30 cents per gallon of what they were prior to the pandemic in some parts of California, a slow decrease in prices is expected to occur. However, such a transition may take months to transpire in urban areas.

Although gas prices have outraged Californians for the past months, pre-pandemic prices are returning as the economy recovers and the balance between supply and demand stabilizes.