Why is gas more expensive in California?
The state is regularly the most expensive state for fuel in the US due to a combination of factors, not least global prices.
California has been battered by constantly increasing fuel prices with prices going up by nearly a dollar in just two months.
Despite having the highest gas tax in the US, factors outside the state’s control are behind the very high prices. This has been mainly caused by OPEC agreeing to cut their production of crude oil, global oil prices surged to their highest level in 10 months.
“Oil costs are putting upward pressure on pump prices, but the rise is tempered by much lower demand,” Andrew Gross, an AAA national public relations manager, said last week.
What is OPEC and why is it significant for gas prices?
The Organization of the Petroleum Exporting Countries (OPEC), is a coalition of oil-producing nations that work together to coordinate and manage their oil production. It consists of 13 member countries, including major oil producers like Saudi Arabia, Iran, Iraq, and Venezuela.
OPEC’s data shows that the group controls more than 80% of all crude oil production in the world, the primary ingredient for making gasoline. When OPEC nations choose to make policy decisions such as the recent production cut, then that has a huge knock-on effect for every country in the world that purchases crude oil, namely all of them.
Why is increased crude oil prices bad news for Californians?
For a state like California that imports 70 percent of its fuel, this is very bad news; it is extremely vulnerable to large market fluctuations such as the one caused by OPEC. Given the state’s already high taxes, environmental regulations, and production costs, any increase in global oil prices will lead to even higher gas prices for Californians.
If we compare California to US states which have the cheapest gas prices, like Mississppi, Georgia, and Louisiana, we can see that these states are not as affected by outside forces due to their location. These states are part of the Gulf Coast region, which is a significant hub for oil and gas production in the US. Californians are also much wealthier compared to residents in the southern US states, earning nearly twice as much on average. This makes the inflated gas prices not as bad a purchase for the residents of California who can afford it.