California fuel prices have long been higher than the global average, and the current crisis is pushing that premium into uncharted territory. The continued contraction of refining capacity and declining domestic crude oil production had already tightened California's fuel supply, but the disruption to shipping through the Strait of Hormuz is amplifying these pressures to an even greater extent.

Currently, gasoline prices in California have surged, nearing a record high of nearly $6 per gallon . Meanwhile, the state's crude oil production has declined at an even faster pace this month, forcing the market to rely on record-breaking imports. However, this growing dependence on imports is clashing with a crisis in Asia (California's primary source of supply), while disruptions in the Strait of Hormuz further limit the availability of petroleum products.

The core issue is the significant reduction in refining capacity.

The structural decline in California's refining capacity is at the heart of this shift.



California has shrunk from 23 refineries in 2000 to just 11. The two most recent major closures are scheduled for November 2025 and April 2026: Phillips 66's Wilmington/Carson refinery complex in Los Angeles (140,000 barrels per day) and its Valero-Benicia refinery in the San Francisco Bay Area (145,000 barrels per day). These two refineries together account for 17.5% of California's total refining capacity, significantly reducing local supply capacity while demand remains stable.

Refinery production restructuring: shifting from gasoline to diesel and jet fuel

Currently, California's remaining refining system is increasingly driven by price incentives rather than simply by capacity constraints.

In April, refineries increased their production of diesel meeting California Air Resources Board (CARB) standards by 16,000 barrels per day and jet fuel production by 20,000 barrels per day, while reducing CARB gasoline production by 32,000 barrels per day. By mid-April, diesel production reached 180,000 barrels per day, the highest level since August 2024; while gasoline production, although still accounting for about half of total refinery output, continued its downward trend, averaging approximately 590,000 barrels per day in April, a year-on-year decrease of about 20%.

This production restructuring reflects a significant widening of price differentials. Currently, the average retail price of gasoline in California is $5.96 per gallon, up about $1.20 from the end of February and up about $1.20 year-over-year; while diesel prices are as high as $7.48 per gallon, up $2.50 year-over-year. Because middle-distillate fuels (diesel and jet fuel) have significantly higher profit margins, refineries are shifting limited capacity from gasoline to middle-distillate products at a critical moment when overall supply is tightening.

Dramatic divergence in cracking spreads drives production shift

This reallocation from gasoline to middle distillate fuels is primarily driven by the sharp divergence in crack spreads on the U.S. West Coast.

At the end of February 2026, the crack spreads for gasoline, diesel, and jet fuel remained largely consistent, fluctuating between $33 and $39 per barrel. However, in March, with the escalation of the US-Israel military action against Iran, middle distillate prices were rapidly reassessed: gasoline crack spreads rose to the $40-$50 per barrel range, while diesel crack spreads surged to approximately $100 per barrel in early April, and jet fuel prices rose to over $85 per barrel.

Currently, jet fuel has become the most profitable product supplied to the California market, with its crack spread remaining at approximately $85 per barrel, more than $20 higher than diesel and about $35 higher than gasoline. This widening spread has prompted refineries to further shift their production capacity to middle distillates, and even with jet fuel production operating at full capacity, supply still cannot meet regional demand.

India becomes a major source of gasoline supply as imports surge.

Production restructuring and insufficient local supply have led to a significant increase in imports.

California's gasoline imports have surged in the past two months, reaching a record 130,000 barrels per day in March. Shipments from the UK (primarily sold by Valero) constitute a significant portion of this volume. Meanwhile, imports from India have risen rapidly. Reliance Industries' Jamnagar refinery shipped a record 960,000 barrels of gasoline to California in April, an increase of over 300,000 barrels month-over-month, making it one of California's major external suppliers of gasoline and blending feedstocks. Notably, the refinery has recently been processing an increasing amount of Russian crude oil. Because the U.S. does not restrict imports of products processed from such feedstocks like the EU does, these cargo flows have grown rapidly without regulatory hurdles.

With South Korea and major Asian powers (formerly California's main gasoline supplier) tightening fuel export controls, fuel trade between California and India is expected to remain stable and potentially increase further in the coming weeks should the Strait of Hormuz disruption continue.

California's stringent fuel standards exacerbate supply difficulties

It is worth noting that California’s unique gasoline and diesel specifications have further exacerbated the supply shortage.

California Air Resources Board (CARB) regulations require extremely low sulfur content, reduced aromatic hydrocarbon content, and strict vapor pressure control, making CARB-compliant gasoline and diesel among the most stringent fuels in the world. Consequently, only a handful of refineries worldwide are capable of producing compliant products, effectively isolating the California market from other regions and significantly limiting the pool of potential suppliers.

Infrastructure bottlenecks limit the availability of new pipeline projects, making it difficult to address immediate needs.

California’s reliance on imports stems not only from declining local production but also from structural infrastructure constraints.

The state lacks sufficient pipelines to transport refined petroleum products from other regions, effectively isolating it from the vast refining system along the U.S. Gulf Coast and forcing it to rely solely on maritime supplies.

Companies are adjusting their strategies to strengthen import infrastructure, including reusing assets from closed refineries.

Phillips 66 and Kinder Morgan are advancing the "Western Gateway" pipeline project, which plans to transport gasoline, diesel, and jet fuel from refineries in the U.S. Midwest and Gulf Coast to California, with a designed capacity of approximately 200,000 barrels per day and a target commissioning date of mid-2029. Additionally, there are plans to reverse Kinder Morgan's existing SFPP pipeline from Colton, California, to Phoenix, Arizona. However, both projects are still several years away from completion and are unlikely to provide substantial relief in the short term.

The pressure on aviation kerosene supply is particularly prominent.

Aviation kerosene is facing the most severe pressure.

Despite high crack spreads prompting local refineries to ramp up production, California's average jet fuel output rose to over 300,000 barrels per day in April from 285,000 barrels per day in March, but imports still declined sharply. Imports from Asia, traditionally dominated by South Korea, Japan, and other major Asian countries, plummeted: while South Korean shipments still arrived at approximately 40,000 barrels per day at the end of March (due to February loading), only 17,000 barrels per day arrived in California via the same route in April, a decrease of over 50% month-on-month. Only one South Korean ship loaded jet fuel for California in April, expected to arrive in May, carrying approximately 100,000 barrels.

Meanwhile, California jet fuel inventories have fallen to 2.6 million barrels, the lowest level since November 2023, a significant drop from last year's peak of 3.5 million barrels. Los Angeles jet fuel prices have more than doubled year-on-year, rising from approximately $2.1-2.2 per gallon in 2025 to approximately $4.7-4.8 per gallon in April 2026, placing it at one of the most extreme points of the global price surge.

Asian refineries have reduced operations and stockpiled more fuel for domestic use due to their own reasons, further reducing the resources available for export. For California, which is increasingly reliant on Asian supplies, the real supply squeeze may have only just begun. Cargoes loaded in March are still arriving (but in reduced quantities), and April shipments from Asian suppliers indicate that the number of ships arriving in California in May will be very limited. Furthermore, the impact of the Benician refinery closure in April has not yet fully manifested in the local market.

Overall , the California fuel market is no longer experiencing a short-term supply shortage, but is undergoing a deeper structural shift. With fewer refineries, stricter fuel specifications, and limited domestic supply channels, California is becoming increasingly integrated into an already strained global petroleum product supply system. Currently, authorities are considering temporary exemptions for some CARB gasoline and diesel standards to ease import restrictions, but the market will still face significant pressure in the short term.