California Enacts Legislation Requiring Oil Refiners to Maintain Fuel Reserves to Prevent Gas Price Spikes

California Governor Gavin Newsom on Oct. 14 signed legislation aimed to prevent future spikes in gas prices by requiring oil refiners to keep minimum fuel inventories in order to avoid shortages that could raise gas prices for consumers and boost industry profits. The bill intends to hold oil refiners accountable for manipulating gas prices, or price gouging, by not adequately maintaining fuel inventories or planning for resupply during maintenance.

The new legislation has the support of many stakeholders including policymakers, economists, local leaders, and consumer advocacy groups. The issue of gas price gouging in California stems from the fact that only a few companies supply refined fuel that meets California’s strict fuel specifications. Currently, five companies within California control 98 percent of the refined gasoline supply.

During the gas price spike in September 2023, gasoline suppliers contributed to market volatility by purposely maintaining inadequate supplies and profiting off increased prices. The California Energy Commission found that during this time, there were 63 days where California refiners maintained less than 15 days of fuel inventory, resulting in a price spike. The commission’s Division of Petroleum Market Oversight (DPMO), also found that consumers paid over $2 billion during this time.  As a result, lawmakers have been working on anti price-gouging legislation since 2023.

In June 2023, California enacted a bill, which instructed the commission to monitor and investigate the petroleum market, flagging any volatility or market manipulation. The commission set up two divisions to delegate the tasks of reporting, assessment, oversight, and investigation stated in the bill. The Energy Assessments Division focused on assessment and reporting, while the DPMO focused on market oversight and investigation. The bill had a positive effect with reduced gas prices from April to July this year, according to the commission. Californians spent an estimated $728 million less on gasoline this summer compared to summer 2023.

The new legislation, ABX 1-2, authorizes the commission to establish minimum required inventory levels for refined transportation fuel for California’s fuel refiners and penalize those who do not comply. The commission would also ensure that refiners adequately plan for resupply during refinery maintenance to avoid supply shortages. The bill also requires the commission to submit an assessment to evaluate the state’s future petroleum demand and potential constraints that may impact demand, such as critical marine infrastructure for fuel transport or state regulations that hinder supply.