California, world’s 4th largest economy, stumbles as gas prices could spike to $8, refineries shut—what's gone wrong?

California gas price forecast 2026: California, the world’s fourth-largest economy, is facing a serious blow as two of its biggest oil refineries prepare to shut down by 2026, threatening to send gas prices soaring and ripple through communities that rely on refinery jobs, as per a report. The looming closures have sparked urgent questions: How did a state so economically powerful get here and what’s next for its drivers, workers, and families?

Major Refinery Closures Slashing California’s Oil Capacity by 17%

The Phillips 66 refinery near Los Angeles and Valero’s Benicia refinery in Northern California will shut down in 2026, together slicing nearly 17% of the state’s oil refining capacity, as per Moneywise. That means California’s ability to process its own crude oil will plunge just as the state’s appetite for fuel remains huge, consuming about 13.1 million gallons of gasoline daily, according to the report.

Assemblymember Mike A. Gipson, who represents Gardena said that, “This is a tremendous loss,” referring to the looming closure of the Phillips 66 plant near L.A., as quoted by Moneywise. He explained that, "The jobs that it holds, the individuals … working each and every day, those individuals live in my district, they shop in my district, they add to the economy in my district," as quoted in the report.


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How Regulatory Pressure is Driving Refiners Out of California

So why are these refineries closing? Both companies blame California’s stringent environmental regulations and years of heavy fines, according to Moneywise. Valero, for example, faced an $82 million penalty in 2024 over air quality violations and even Phillips 66 echoes the sentiment, saying the business challenges stem from California’s strict environmental regulations, as reported by Moneywise.

Gipson summarised the problem, saying, "They have said that they cannot do business in the state of California," adding, “The regulatory agencies have imposed on the refiners of California very stringent regulation that makes it very difficult for them to remain in the state of California,” as quoted in the report.

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Rising Gas Prices: What Californians Can Expect Soon?

The consequences are already looming. Californians pay the highest gas prices in the country, around $4.85 per gallon, well above the $3.16 national average, as per the Moneywiser report. Experts have warned that losing these refineries could push prices even higher, with some forecasts expecting prices could increase more than $8 per gallon by late 2026, according to the report.

Economic Ripple Effects: Local Economies and Tax Revenues in Jeopardy

For many Californians, the pain will be felt at the pump, but the impact goes deeper, as per the report. With fewer refineries, the state will rely more on imported fuel, increasing shipping costs and emissions, as per Moneywise. This also threatens the entire West Coast’s fuel supply, since California accounts for 11% of the region’s refining capacity, according to the report.

USC Professor Michael Mische said in a May 2025 report that, “California can ill afford the loss of one refinery, let alone two,” as quoted by Moneywise.

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Meanwhile, each closure will put at risk the loss of hundreds of direct and indirect jobs, the Benicia refinery supports about 400 employees, while Phillips 66 has about 900 workers and contractors, as reported by Moneywise. Layoffs will ripple through communities, hurting local economies and tax revenue, according to the report.

FAQs

Why are two major California refineries shutting down?
They cite strict environmental regulations and expensive fines, which have made it too costly to operate in California, as per the Moneywise report.

How much refining capacity will California lose?
About 17%, which is a significant hit given the state’s high fuel demand.