Retail gasoline prices in California have been consistently higher than the U.S. average, but the gap may continue to grow with the upcoming closure of two gasoline refineries. In a new article by University of California (UC), Davis, economists examine the impact of these closures on California gas prices. The authors find that, by August 2026, when the full effect of the closures is realized, California prices could rise by $1.21 if no further significant changes happen in the market.
Phillips 66 announced it would be shutting down its Wilmington refinery in the fourth quarter of 2025 and Valero announced it would also be closing its Benicia facility in April 2026. These two facilities account for 8.3% and 8.6% of the total refining capacity in the state, respectively. What will a 17% decrease in refining capacity look like for California consumers?
To be compliant with California’s stringent air quality and other environmental regulations, California gasoline must be blended with specific components not required elsewhere in the U.S. As a result, most of the gasoline used in California is produced in-state. When major California refineries shut down, this supply cannot be easily replaced with out-of-state supply and Californians are more likely to feel the results at the pump.
Price differences between California and the rest of the U.S. have been gradually increasing, said Bulat Gafarov, a co-author on the paper and an assistant professor of agricultural and resource economics at UC Davis.
“In 2000, the California gas price was approximately $0.25 higher than the national average, but by 2025 the difference increased to $1.50,” Gafarov wrote.
The authors investigated how the upcoming decrease in refining capacity would affect short-run and long-run gas prices. Assuming no other changes to demand or California policy, they expect that, almost immediately after the first closure, there will be a 40-cent increase in California gas prices. As the market reaches a new equilibrium after both refineries close (around August 2026), they expect to see prices rise to $1.21 above their current market price.
“One way to potentially avoid this price increase could be to change regulatory constraints in California, which would allow more imports,” co-author Armando R. Colina, a senior economist at Banco de Mexico and a UC Davis alum, said. However, given infrastructure constraints, even this may not significantly decrease the coming gas price increases. — UC Davis Extension
