Refinery Closures Current Danger for Greater Gasoline Costs on the West Coast

California is about to lose 17% of its oil refinery capability over the following 12 months due to two deliberate refinery closures. If realized, the closure of the amenities is more likely to contribute to will increase in gasoline value volatility on the West Coast.

Phillips 66 introduced plans final October to shut its 139,000-barrel-per-day (b/d) Wilmington refinery within the Los Angeles space later this 12 months. Valero submitted a discover in April to finish refining operations at its 145,000-b/d Benicia refinery within the Bay Space by the tip of April 2026. The refinery closures proceed a development of reducing refinery capability on the West Coast, following the tip of petroleum refining operations at Phillips 66’s Rodeo refinery early final 12 months and the closure of Marathon’s Martinez refinery in 2020.

California normally has increased retail gasoline costs in contrast with the nationwide common. One motive is the relative lack of logistical connectivity on the West Coast to different refinery hubs in the USA, such because the Gulf Coast. Though the Los Angeles and Benicia refineries make up lower than 2% of present U.S. refining capability, they account for 17% of California refinery capability and 11% of West Coast (PADD 5) capability. The availability shortfall left by their exit is due to this fact more likely to have an outsized affect on the area as a result of it can’t be simply stuffed by different refineries elsewhere within the nation.

Given the restricted connectivity to different U.S refining hubs, the most definitely supply of alternative fuels can be imports from Asia, notably imports of jet gasoline and gasoline. California’s distinctive specification gasoline blendstock, often called CARBOB, can solely be manufactured by correctly outfitted refineries. Phillips 66 is planning to produce some California-grade gasoline at its refinery in Washington, and a few refineries in India and South Korea can meet these specs. Arizona, which additionally has a singular gasoline mix, and Nevada obtain gasoline shipments from California refiners and are additionally more likely to be affected by the decreased regional provide.

Knowledge for late Could 2025 confirmed whole gasoline imports (together with completed gasoline and mix parts) into the West Coast above 210,000 b/d, setting a file on a four-week common foundation. Though these imports have since come down in June, summer time imports are more likely to additional improve subsequent 12 months after the 2 California refineries come offline.

Importing petroleum merchandise presents sure dangers for gasoline provides on the West Coast. Shipments of petroleum merchandise throughout the Pacific Ocean will take longer to answer market calls for, that means that surprising shortfalls may contribute to momentary value will increase or heightened volatility. Final 12 months, the California state authorities instituted a brand new minimal stock regulation, which may scale back the danger of potential shortfalls in gasoline provides.

In our July Quick-Time period Vitality Outlook, we forecast a small improve in West Coast retail gasoline costs subsequent 12 months in response to the capability closures, in distinction to cost decreases elsewhere within the nation. We count on decrease crude oil costs, which account for round half of the worth of gasoline, in 2026 to counteract a few of the impact of the refinery closures on retail gasoline costs within the close to time period.

Principal contributor: Kevin Hack. Article from At this time in Vitality.