California's Gasoline Crisis Deepens as Refinery Closures Force Reliance on a 55-Tanker Global Bottleneck — May CARB Vote Could Spur $1/Gallon Surge

California's gasoline supply is under structural pressure, with its domestic refining base contracting sharply. The state has lost 156,000 barrels per day of production capacity from the Phillips 66 Los Angeles refinery closure last year. This is followed by the pending shutdown of Valero's Benicia facility in April 2026, which will remove another 150,000 barrels per day. Combined, these closures create a 306,000 barrels per day production gap that must be filled from outside sources.

This gap is not a minor blip but a fundamental shift in the state's energy equation. The closures represent a 17% reduction in California's refining capacity, eliminating roughly one in every eight barrels of gasoline the state once produced. In response, the state has turned to imports at an unprecedented scale. California sourced more barrels of gasoline from the Bahamas in 2025 than it did in the prior nine years combined, a clear signal of how reliant it has become on external supply to fill the void left by shuttered refineries. The result is a supply chain now stretched across thousands of miles, vulnerable to the very regulatory and logistical constraints that are making local refining uneconomical.

The Import Bottleneck and Price Impact

The logistical path to fill California's refining gap is long, costly, and constrained by law. The state's reliance on imported gasoline creates a complex, multi-leg supply chain. Gulf Coast refineries produce the fuel, but to comply with the Jones Act, which mandates that goods shipped between U.S. ports travel on U.S.-built, owned, and operated ships, the product must first be routed to the Bahamas. From there, it is shipped across the Atlantic and Pacific to California. This detour adds significant time and expense to the journey.

The scarcity of compliant vessels is a critical bottleneck. There are only about 55 Jones Act-compliant oil tankers worldwide, a tiny fraction of the global fleet. This scarcity drives up charter rates and limits the speed at which California can bring in replacement supply. As a result, the state has become the world's largest importer of gasoline from the Bahamas, with shipments from that island nation surging to more than 12% of its ship-borne imports in 2025. This specialized, circuitous route is a direct consequence of regulatory and logistical constraints that make local refining uneconomical.

The economic cost of this system is passed directly to consumers. California's diesel prices are the highest in the nation, averaging $4.86 per gallon. While the state's highest gasoline tax in the nation and distance from major refining centers are key drivers, the Low Carbon Fuel Standard (LCFS) is a significant contributing factor. The LCFS, which imposes costs on higher-carbon fuels, has been tightened recently, raising the carbon-intensity targets and limiting crop-based biofuels. These reforms are expected to further increase fuel costs for California's agricultural and transportation sectors. In essence, the combination of a constrained shipping network and stringent environmental regulations is creating a powerful upward pressure on fuel prices that is difficult to reverse.

Policy-Driven Refining Economics

The looming regulatory shift threatens to tip the balance decisively against California's remaining refineries. In May, the California Air Resources Board (CARB) is set to vote on amendments to the state's cap-and-invest program that would set more aggressive emissions limits through 2030 and reduce the number of tradable allowances. For companies like Chevron, this isn't just another environmental rule-it's a potential death knell. The company's president has warned that the proposal could raise gas prices by over a dollar per gallon by 2030 and threaten the survivability of the state's remaining refineries.

The economics here are straightforward and punishing. The program would tax in-state producers and refiners, adding billions in costs. Yet, the penalty is avoidable. As Chevron's executive noted, companies won't pay the tax if they bring the fuel in from other countries. This creates a powerful, self-reinforcing incentive to import rather than produce locally. In a state where about 70% of oil supply is already shipped in, this regulatory push would further erode the domestic refining base.

The competitive disadvantage is stark. While local refineries face a new, costly compliance burden, foreign suppliers can bypass it entirely. This dynamic directly fuels the trend of refinery closures, turning what was already a challenging business environment into an existential one. The message is clear: the state's policy could accelerate the very supply vulnerability it aims to address, by making it cheaper to import fuel than to keep local refineries running.

Catalysts and Price Signals to Watch

The immediate test for California's gasoline supply will come in May, when the California Air Resources Board (CARB) votes on the proposed cap-and-invest amendments. This decision is the single most important catalyst. If adopted, it would lock in the stricter emissions limits and reduced allowances that Chevron has warned could threaten the survivability of the state's remaining refineries. A vote in favor would likely accelerate the import dependency that is already straining the system. A delay or rejection, however, could provide a temporary reprieve, allowing time for negotiations and potentially stabilizing the outlook for local refining.

Leading indicators of supply stress are already visible in the flow of imports. The state's reliance on the Bahamas route is a direct measure of the refining gap. Watch for the volume of gasoline shipments from that island nation and other sources like India and South Korea. In 2025, the Bahamas alone supplied 12% of California's ship-borne gasoline imports, a figure that has surged dramatically. Any further increase would signal that the logistical bottleneck is not easing. Conversely, a plateau or decline could indicate that the state's import capacity is reaching a practical limit, or that domestic supply is holding up better than expected.

Another potential signal to monitor is any movement on infrastructure projects aimed at easing the maritime bottleneck. The proposed Western Gateway Pipeline is a key example. If permits are granted and construction moves forward, it could eventually reduce the need for long-haul sea transport. However, new pipelines in the U.S. face significant hurdles, including lawsuits and protests. Any progress on this front would be a positive development for supply chain efficiency, but it is a longer-term solution unlikely to impact the near-term balance.

Finally, keep an eye on the price signals themselves. The current high prices, with diesel at $4.86 per gallon, reflect the combined pressure of regulatory costs, import logistics, and taxes. If the CARB vote goes through as planned, these prices are likely to climb further. The market will be watching for any signs of volatility or sharp spikes, which would indicate that the supply chain is struggling to meet demand during peak periods. The bottom line is that the next few months will show whether the state's supply gap is being filled, or whether the structural pressures are building toward a more acute crisis.