California’s Shrinking Refinery Base and the Coming Summer $8.45 Price Shock

California’s fuel market is entering a period of structural strain following the shutdown of the Valero Benicia refinery, which ceased refining operations on January 31, 2026. The facility, operated by Valero Energy in Benicia, has historically processed roughly 145,000 barrels per day — representing close to 8–9% of California’s in-state refining capacity. Its closure marks the second major refinery exit affecting California’s gasoline supply within a short timeframe.

Valero Benicia refinery has been in operation since the World War II. Now gone for good. 

When combined with the previously announced shutdown of the Los Angeles–area facility operated by Phillips 66, the state is on track to lose approximately 20% of its refining capacity by mid-2026. That scale of reduction is significant in any fuel market. In California, it is especially consequential because the state functions largely as a “fuel island.”

Unlike many other regions, California requires a uniquely specialized gasoline formulation under its environmental regulations. That means fuel from the Gulf Coast or Midwest cannot simply be piped in as a quick substitute. Replacement barrels must be imported by tanker — often from Asia or other global refining centers — and that process is slower, more expensive, and more vulnerable to shipping bottlenecks.

Refineries do more than just produce gasoline; they provide supply stability. When a major facility shuts down, it removes not only daily output but also flexibility in the system. With fewer refineries operating, any unexpected maintenance issue or operational disruption at a remaining plant has a magnified impact. The buffer that once existed becomes thinner.

Gasoline pricing is governed by supply, demand, and inventory levels. California is now facing a scenario in which supply has structurally declined while demand has not fallen at the same pace. Although electric vehicle adoption is increasing in the state, gasoline consumption remains substantial, particularly heading into the summer driving season when miles traveled typically rise.

This imbalance increases volatility risk. Even modest disruptions can trigger price spikes when inventories are tight. In recent weeks, pump prices have already begun to climb. Some market analysts warn that summer prices could reach extreme levels if imports fail to keep pace or if global crude prices strengthen.

Import substitution will occur — California will not simply “run out” of fuel — but imported supply comes with higher transportation costs and longer lead times. Those added costs are generally passed through to consumers. Additionally, imported gasoline can be exposed to global market fluctuations that domestic refining once buffered.

The broader policy debate centers on timing. Supporters of California’s energy transition argue that declining refining capacity reflects long-term shifts toward electrification and lower carbon fuels. Critics counter that reducing refining capacity faster than gasoline demand declines creates price pressure for consumers.

What is clear is that the loss of a second major refinery tightens an already constrained system. With fewer in-state producers and limited rapid substitution options, California’s gasoline market becomes more sensitive to shocks. As summer approaches, that structural tightness is expected to exert upward pressure on prices, increasing both the average cost at the pump and the likelihood of sharp short-term spikes.

Price Outlook: What Experts Are Projecting

Looking ahead, price forecasts are becoming more pointed. According to Professor Michael Mische of the University of Southern California, California gasoline could reach $8.45 per gallon if current supply constraints persist into the peak summer driving season. His projection reflects the combined impact of reduced in-state refining capacity, higher import dependence, elevated global crude prices, and seasonal demand increases.

While projections are not guarantees, they are grounded in structural realities. With roughly one-fifth of California’s refining capacity offline or scheduled to exit, the system has less shock absorption. Any additional refinery maintenance, unexpected outage, or global supply disruption could accelerate price movement.

If import flows stabilize and crude prices soften, the peak could come in lower. But if inventories remain tight and summer demand climbs as expected, the upper-range forecast of $8.45 per gallon becomes a plausible scenario rather than a distant outlier.