Gas prices shot up quickly as a result of the war in the Middle East.
As I wrote this column on March 9, prices for West Texas Intermediate (WTI) crude, the benchmark of U.S. oil, had risen more than 50% before seeing some moderation with hope that the war may soon be over.
The good news is that futures prices for deliveries later in the year suggest the market is pricing in a shorter war, but time will tell.
This all made me wonder why gasoline is always so much more expensive here in California than in other parts of the country.
They say a picture is worth a thousand words, so look at the nearby Wall Street Journal chart, which clearly shows that California and Washington have the nation’s highest gas prices.
To help understand why our gasoline costs are so much higher, I did some digging with a little help from artificial intelligence and thought you might like seeing why. You’ll note that I compared our gas prices to those of neighboring Arizona as well as Oklahoma, which is like other central states.
Here’s a look at what I learned:
California has the nation’s highest gas tax. Taxes explain a big part, but are not the only cost difference.
Research shows that low-carbon fuel standards, cap-and-trade costs, a special California blend, refinery capacity limits and transportation constraints are other major contributor — adding about 54 cents per gallon, according to Reuters.
What’s interesting is that the price gap between California and other states has grown over the past 20 years. For example, the price gap between California and Arizona was 30-50 cents per gallon in 2006 and $1.20-$1.50 per gallon in 2025, according to AAA.
California functions as an “energy island” with limited refineries, no long-haul oil pipelines, heavy reliance on marine imports and a highly concentrated refining sector. Part of this is geographic and part political.
“Gas prices are currently in the ‘If you have to ask, you can’t afford it’ range.”
Regardless, this structure makes California more exposed to outages, which is why we see big spikes in gas prices when we have maintenance shutdowns and refinery closures.
UC Davis economists estimate that the closure of Phillips 66’s Wilmington refinery and the upcoming shutdown of Valero’s Benicia refinery — which together accounted for roughly 17% of state capacity — could raise gas prices by about $1.21 per gallon by midyear.
And, folks, when you consider that California’s gas consumption is roughly 13 billion gallons per year, we’re talking about some serious money.
With important discussions about affordability, especially here in Santa Barbara, high gas prices can really hurt.
Hopefully, we’ll see the recent price spike abate if we can find peace in the Middle East, but we will still need to deal with higher costs here in the “Golden State.”