Californians pay the highest prices for gasoline at the pump. Why? Quick summary: A new study finds the state price is on average $1.20 above the national average. Of that, only around 40 cents per gallon derives from higher crude oil prices and refinery costs, charged by the Big Oil companies. The bulk of the higher cost, about 80 cents, comes from state taxes, environmental regulatory costs, and other fees.
- 12 percent state excise tax
- 11 percent environmental fees
- 4 percent federal excise tax
- 2 percent state and local taxes
Foreign Crude Oil Dependence Is Increasing
Big Oil is responsible for the cost of crude oil. But the study showed that price is set globally. There are three main benchmarks: Dated Brent (from the United Kingdom), West Texas Intermediate (WTI), and Dubai. Another graph showed how close they are in price over time.
Mr. Michaels and Mr. McQuillan write: “The data demonstrate that in mature global markets such as crude oil, prices will tend to converge over time and move together when events impact market participants. Transaction costs represent ‘obstacles’ that keep prices from equalizing in the long run. Local events, such as refineries suddenly shutting down due to unexpected maintenance, a fire, or a hurricane, can disrupt markets temporarily—more so in California.”
Disruptions occur more in this state because it is a “fuel island.” It uses two unique gasoline blends, summer and winter, to fight smog. When state refineries are down, it can’t just bring in gas from Arizona or Nevada.
Notice reliance on foreign crude soared from just 12 percent in 1997 to 59 percent today—almost five times as much.
On foreign oil imports, the authors note: “Imports from Saudi Arabia, which must be transported across the Pacific Ocean, are rising overall and today exceed the supply from Alaska, which is declining. Mexico’s history of oil field nationalization since the 1930s and its problematic political relationship with the United States have combined to reduce its actual and potential exports to the United States and California. Canada sends substantial amounts of crude oil to the Midwest and Northeast, but limited pipeline capacity leaves it with only a small fraction of California’s market.”
California’s Gas Price Soared the Past 2 Decades
I remember buying regular gasoline for less than $1 per gallon in the late 1990s. I could fill up my 1993 Toyota Corolla for less than $10. That low price at the pump was close to the average of the 50 states.Nowadays, every time I return from visiting my brother in Arizona, I make sure I fill up at Ehrenburg, the last city before heading west across the Colorado River. The Michaels-McQuillan study used data from July 17, 2023 as its base of analysis. But let’s look at the prices now.
- U.S. average: $3.44 a gallon;
- California: $4.89, $1.45 higher than the national average, and highest among the 50 states;
- Arizona: $3.64, $1.25 less than in California.;
- Texas: $3.058, $1.83 less than in California, and third lowest by a fraction;
- Colorado: $3.056, $1.83 less than in California, and second lowest by a fraction;
- Mississippi: $3.01, $1.78 less than in California, and lowest among the states.
Blame California’s Politicians for High Gas Prices
The Michaels-McQuillan study definitively shows it’s not Big Oil that’s largely responsible for California drivers suffering the highest gas prices in the country, but the politicians in Sacramento, beginning with Mr. Newsom. And it’s just going to get worse.Some of these companies might even leave the state, reducing competition—which would push prices even higher.
The result for many families will be to fill up their SUV gas tanks one last time in California, then head east permanently to another, better-run state with cheaper gas.
