Who can we blame for record high gasoline prices? Sorry. Nobody in particular. The biggest culprit is COVID-19.
I would like to blame some politicians, such as Governor Gavin Newsom.
After all, this governor looks guilty.
The price of practically any commodity is based on the principle of supply and demand. And Newsom has declared all-out war on California’s oil production as he leads the state in the fight against global warming.
He has determined that no new gas-powered cars will be sold in California by 2035 and that all oil production in the state will end by 2045. It will be long gone from Sacramento by then, but it still sends a message to oil producers that new investment in California would be like throwing money into an abandoned well.
The governor has also decided to ban new oil drilling within 3,200 feet of homes, schools, and healthcare facilities and to require emissions monitoring from existing wells within those buffer zones.
But none of that has much, if anything, to do with skyrocketing gas prices approaching $5 a gallon.
UC Berkeley energy economist Severin Borenstein says California’s oil production is virtually irrelevant to the global price of crude oil.
“California producing more oil would have a negligible effect on gasoline prices,” he says. They are determined by ‘world supply and world demand’.
These shocking gas prices were in fact set by COVID-19.
Millions of Californians — and people around the world — were locked up and parked their cars when the pandemic hit. Gas demand slowed to a crawl. So oil companies stopped producing fuel.
Then came vaccines. Politicians bowed to public pressure and opened up people’s lives. Excited motorists jumped back into their cars and drove off on road trips. The demand for gas escalated. But stocks were low. Oil companies couldn’t — or wouldn’t — keep up with demand. And prices shot up.
“When you shut down production, restarting isn’t as simple as turning a switch back on,” said Nick Vyas, executive director of the Global Supply Chain Management Institute at the USC Marshall School of Business.
“And it’s not just production. There is the long supply chain that takes at least a few months to get going again.
“The high gas costs are mainly due to disruptions during the pandemic,” says Vyas.
But California gas prices have always been among the highest in the nation, and now they’re right at the top — about $1.25 a gallon above the national average, according to the American Automobile Assn.
Why are the prices so high here?
Start with the highest fuel taxes in the country. Voters can thank themselves for that. Politicians – mainly Democrats – proposed the high state taxes, but voters approved them. It is for a good cause: mainly road construction.
For every gallon of gas, motorists pay nearly 67 cents in state and local taxes. In addition, there is a federal tax of 18.4 cents, bringing the total government tab to 85.4 cents.
That’s an average of 29 cents higher than other states’ taxes, according to the California Energy Commission.
The commission also estimates that oil companies charge consumers 23 cents per gallon to participate in the state’s climate mitigation program, which purchases permits to emit greenhouse gases. don’t ask.
Likewise, motorists are hit by about 18 cents for the companies’ costs to meet the state’s low-carbon fuel standards.
And 15 cents is added for special anti-smog blends from California. This allows Southern Californians to see the mountains in the summer.
The crude oil itself costs just over $2. Refining to gasoline costs an additional $1. Distribution around 40 cents.
And invariably there is gushing — especially around holidays.
“Retailers in California charge more than retailers in other states,” said Lindsay Buckley, spokesman for the Energy Commission. “It’s a free market.”
More than 6 million motorists are expected to hit state highways before Thanksgiving, according to the Automobile Club of Southern California.
“It looks like a very busy Thanksgiving,” said club spokesman Doug Shupe. “So many people want to reconnect with loved ones.
“Usually after Labor Day, we see prices start to drop at the pump. But this year, they’re driving through the fall months, visiting friends and family.”
In any case, expect gas prices to remain high during the Christmas and New Year’s holidays, experts say.
The oil industry blames excessive state regulation — a common complaint from California businesses — for high production costs being passed on to motorists.
“We’re not against the use of renewable energy, but that transition needs to be well planned,” said Kevin Slagle, spokesman for the Western States Petroleum Assn. “We don’t see much planning at the moment. Our energy future feels a bit reckless and expensive. And it’s going to hurt people.”
California oil production has been declining steadily since it peaked at 423 million barrels in 1985. In 2020, it produced 148 million barrels of crude oil, according to CalGEM, the state oil regulatory division.
Why the decline? An important reason is that after more than a century of pumping, many wells have been drained.
“You can only squeeze so much out of it,” said Uduak-Joe Ntuk, the state regulator of oil and gas production. “And no new discoveries have been made since the 1960s.”
About 70% of California’s oil is produced in Kern County.
California generates 30% of the oil it burns and imports the rest, mostly from Alaska.
We’ve fallen to No. 7 in oil production, well below No. 1 Texas.
But that has little or nothing to do with the price of gas.