NEW YORK (Reuters) – Fuel manufacturers in California may encounter more difficulties next year as new laws come into play and refining margins stay weak, according to a report from the U.S. Energy Information Administration (EIA) released on Monday.
Key Takeaway: California, the most populous state in the U.S., regularly experiences some of the highest gasoline prices in the nation. This has created a strained relationship between the state and oil companies. Geographically, California is isolated from major refining hubs in the Gulf Coast and Midwest, forcing the state to either produce its own motor fuels or import them from Asia.
However, as state refineries struggle with profitability, imported fuels may play a larger role in meeting California’s fuel demand, the EIA stated in its analysis.
Background: In October, California Governor Gavin Newsom signed ABX2-1 into law, aimed at preventing fuel shortages. This new law mandates that refiners maintain minimum fuel inventory levels and coordinate essential refinery maintenance with labor and industry stakeholders. The legislation also gives state regulators more oversight of the industry.
Following the announcement of this bill, Phillips 66 revealed plans to shut down its large Los Angeles-area refinery by the end of 2025, citing “market dynamics” as the reason. Earlier this year, Phillips 66 also completed the conversion of its Rodeo refinery near San Francisco into a renewable diesel production facility, halting crude oil processing.
Market Trends: Refiners are continuing to struggle with weaker gasoline and diesel margins. In September, the U.S. gasoline crack spread dropped to $11.73 per barrel, its lowest level since November 2023. Similarly, the diesel crack spread fell to $17.98 per barrel in September, the lowest point since July 2021.
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