Why are gas prices in California so high? Will it get worse this winter?

“The problem here is the U.S.,Europe, and developed countries’ dependence on oil and unwillingness to cut back oil consumption,” says UC Berkeley professor Severin Borenstein. Photo by Shutterstock.

Gas prices in LA are at an all-time high, averaging $6.49 per according to AAA. To help provide relief, California is sending taxpayers up to $1,050 in gas rebates and is switching to a cheaper, winter blend of gasoline. 

Meanwhile, OPEC and Russia announced they plan to cut oil production by two million barrels a day. That could push worldwide gas prices even higher, and increase the chances for a global recession. 

California’s gas prices are typically higher than the rest of the country due to higher taxes and environmental fees. However, the recent surge can be attributed to a sudden rise in wholesale gas, prompted by a refinery closing. That’s all according to Severin Borenstein, professor of business administration and public policy at UC Berkeley. 

To help with prices, Governor Gavin Newsom is calling for a windfall tax that would cap oil company profits. If they exceed the threshold, then they’re taxed at a higher rate, and the money would go back to the public in the form of a rebate. However, Borenstein says that it’d be difficult to implement that tax. 

“A lot of the oil is produced elsewhere, not just elsewhere in the U.S., but elsewhere in the world. You can't tax the profits off that oil production. You could tax the profit off of refining the oil into gasoline. But the problem with that is that you have to then define exactly what those profits are. And refining is a really complicated business where it would be difficult to actually nail that down.” 

Borenstein says oil price hikes shouldn’t come as a shock, and he points out that OPEC is looking to make money. 

“They almost always argue that prices should be a bit higher than wherever they are right now. When they were $60, they said that a good target would be $80. Now that they're at $80, they’re saying a good target would be $100. So I think we have to stop kidding ourselves that the Saudis are actually a cooperative country that isn't just out to make as much money as they can.”

Borenstein says that while OPEC has announced the oil production reduction, it’s unclear whether it’ll actually happen.

“The oil market seems to be a bit skeptical. The price of oil has gone up a bit around this announcement. But it's only gone up about $5 a barrel. That translates to about 12 and a half cents a gallon at the pump. And so that is a smaller increase than I would expect if we really saw a 2 million barrel a day cut.”

He adds, “The problem here is the U.S., Europe, and developed countries’ dependence on oil and unwillingness to cut back oil consumption, even when it not only is a real economic drain on the country, but also is enriching aggressive countries like Russia and fueling their war on Ukraine.”