California Gas Prices on Three-Month Decline: Energy Commission

The average gas price in California has decreased by 78 cents per gallon during the last three months, according to the California Energy Commission. The decrease is attributed to the California Gas Price Gouging and Transparency Law, SBX 1-2, which took effect in June 2023.

The law enhances transparency by exposing price manipulation in real time through daily market and import reports, and increases accountability by obtaining monthly reports on refiners’ profit margins. Further, the law helps prevent gas price spikes from refinery outages by requiring refineries to report maintenance schedules in advance and unplanned maintenance in real-time.

As of July 15, the average retail price of gas in California was $4.49, compared to its peak at $5.27 on April 15 this year. The decrease is due to reduced margins in the oil industry, including the costs and profits associated with refining, distribution, and marketing. Between July 2023 and July 2024, these costs have had a significant impact on the reduction of gas prices in California. For example, the cost of crude oil per gallon was higher in July 2024 at $2.04 compared to $1.92 in July 2023. However, this was offset by a noticeable reduction in refinery costs, which had decreased by 50 cents during this period.

In California, refining costs are an important component of retail gas prices. The state has stringent environmental regulations with specific requirements for gasoline refining and blending. This gasoline specification is known as California Reformulated Gasoline Blendstock for Oxygenate Blending, or CARBOB, and is designed to adhere to one of the strictest air pollution requirements in the U.S. As a result, refining gasoline in California requires different equipment, more processing and more expensive blending components to adhere to the strict pollution requirements.

Due to these gasoline blending requirements, refining costs in California tends to be one of the highest in the country. In late November 2023, for example, the average refining costs in the U.S. for a gallon of gasoline was $0.27. In California, the average refining cost per gallon was $0.53.

In the past, oil companies have taken advantage of these stricter laws to hike up prices. The summer and fall of 2022 saw the state’s retail gas prices soar well above $6 per gallon, peaking more than $2.25 above the prices across other states. The record high gas prices in late 2022 prompted California to enact SBX 1-2 in mid 2023.

The price gouging law allows the commission to report, closely monitor and investigate fluctuations in California gas prices. The legislation’s primary objective is to protect consumers from price gouging and other unfair actions of oil companies.

A better understanding of the factors affecting demand and supply of gasoline will help California implement measures, such as price gouging penalties for oil companies. This allows the commission to set a maximum gross refining margin and penalize companies who do not adhere to it.

Two branches of the commission are in charge of implementing SBX 1-2: Energy Assessments Division will oversee the collection of data, reporting and assessment and Division of Petroleum Market Oversight will manage the activities pertaining to market oversight and investigation.