California law, refinery exit reflect ongoing fuel market challenges, EIA says

By Nicole Jao

NEW YORK (Reuters) – Fuelmakers in California could face more headwinds next year as new legislation takes effect and refining margins remain weak, the U.S. Energy Information Administration (EIA) said on Monday.

WHY IT IS IMPORTANT

California, the most populous U.S. state, consistently faces some of the nation’s highest average gasoline prices, leading to an often tense relationship between the state and oil companies.

The state is geographically isolated from the Gulf Coast and Midwest refining centers, and must produce all its own motor fuels or import them from Asia.

However, imported fuels are likely to become a more important source of supply for California as refineries in the state struggle with profitability, the EIA said in an analysis on Monday.

CONTEXT

In October, California Governor Gavin Newsom signed into effect ABX2-1, a bill designed to prevent fuel supply shortages in the state. The bill requires refiners to maintain minimum fuel inventory levels and manage necessary refinery turnarounds and maintenance in consultation with labor and industry stakeholders, giving state regulators more control.

Shortly after, Phillips 66 (NYSE:PSX) announced plans to shut its large Los Angeles-area oil refinery during the fourth quarter of 2025, citing “market dynamics” for the decision.

Earlier this year, the refiner completed converting its Rodeo refinery near San Francisco into a renewable diesel production facility that no longer processes crude oil.

BY THE NUMBERS

Weaker gasoline and diesel cracks continue to weigh on refiners. The U.S. gasoline crack spread fell to $11.73 a barrel in September, the lowest since November 2023. The diesel crack spread traded at $17.98 a barrel in September, its lowest since July 2021.