California is one of the places where fuel prices have long traded above global averages, but the current crisis is pushing that premium into uncharted territory. A steadily shrinking refining base and declining domestic oil production had already tightened the system. However, the disruption in the Strait of Hormuz is now amplifying those pressures into something far more serious. Gasoline prices are soaring and have already approached all-time highs of almost $6/USG, while in-state production continues to fall at even higher pace this month, forcing the market into record levels of imports. However, this growing reliance on imports is colliding with a crisis that has hit Asia (the primary supplier base for California) just as Hormuz disruptions constrain flows and limit oil products’ availability.
The structural decline in refining capacity is central to that shift. The number of refineries in California has fallen from 23 in 2000 to just 11 in 2026. The latest closures came in November 2025 and April 2026, with the shutdown of the 140,000 b/d Phillips 66 Wilmington/Carson complex in Los Angeles and Valero’s 145,000 b/d Benicia refinery in the Bay Area. The two plants together accounted for 17.5% of the state’s refining output, removing a substantial share of local supply at a time when demand is still stable.
What remains of California’s refining system is increasingly being reshaped by price incentives rather than capacity alone. In April, refiners boosted production of CARB-diesel by 16,000 b/d and jet fuel by 20,000 b/d, while cutting CARB-gasoline output by 32,000 b/d. Diesel production reached 180,000 b/d in mid-April (the highest since August 2024), while gasoline – despite still accounting for roughly half of total refinery output – has been on a steady downward trend and averaged around 590,000 b/d, about 20% lower year on year. The shift reflects widening price differentials: retail gasoline in California is averaging $5.96/USG, about $1.2/USG higher than in the end of February and roughly $1.2/USG above year-ago levels, while diesel is trading at $7.48/USG, up by $2.5/USG year-on-year. With mid-distillates trading at larger margins, refiners are reallocating shrinking capacity away from gasoline at precisely the moment when supply is tightening.
This reallocation away from gasoline is largely driven by a sharp divergence in crack spreads on the US West Coast. In late February 2026, margins across gasoline, diesel and jet fuel were broadly aligned, fluctuating within a relatively narrow $33–39/bbl range. That balance spiralled out of control in March, as the escalation of the US–Israel operation in Iran triggered a swift repricing of middle distillates: gasoline cracks moved into the $40–50/bbl range, while diesel surged to around $100/bbl by early April and jet climbed above $85/bbl.
By now, however, jet fuel is by far the most profitable product to supply into the Californian market – with cracks still elevated at around $85/bbl, it is more than $20/bbl higher than diesel and some $35/bbl higher than gasoline. The widening premium for jet fuel and diesel has pulled refinery output toward middle distillates at the expense of gasoline. Even at jet production maxed out to the fullest, supply is still lagging behind regional demand.
This reallocation away from gasoline is largely driven by a sharp divergence in crack spreads on the US West Coast. In late February 2026, margins across gasoline, diesel and jet fuel were broadly aligned, fluctuating within a relatively narrow $33–39/bbl range. That balance spiralled out of control in March, as the escalation of the US–Israel operation in Iran triggered a swift repricing of middle distillates: gasoline cracks moved into the $40–50/bbl range, while diesel surged to around $100/bbl by early April and jet climbed above $85/bbl.
By now, however, jet fuel is by far the most profitable product to supply into the Californian market – with cracks still elevated at around $85/bbl, it is more than $20/bbl higher than diesel and some $35/bbl higher than gasoline. The widening premium for jet fuel and diesel has pulled refinery output toward middle distillates at the expense of gasoline. Even at jet production maxed out to the fullest, supply is still lagging behind regional demand.
The pressure is particularly acute in jet fuel, no matter how hard the domestic refiners have been driven to increase its production by the current crack spreads. Imports from Asia (traditionally anchored by South Korea, Japan and, to a lesser extent, China) have declined sharply. Korean cargoes continued to arrive at roughly 40,000 b/d through the end of March (due to shipments loaded in February), however in April only 17,000 b/d had reached California by the same route, representing a drop of more than 50% month on month. Only one vessel was loaded in South Korea for California in April, expected to reach its destination in May, carrying around 100,000 barrels. At the same time, California’s jet inventories have fallen to 2.6 million barrels, the lowest since November 2023 and down from a peak of 3.5 million barrels last year.
Local production has been rising in response. Average jet fuel output in California increased from 285,000 b/d in March to more than 300,000 b/d in April, as refiners attempt to offset the shortfall and enjoy the highest jet crack spread in years. Consumer price dynamics suggest the imbalance remains acute. Jet fuel prices in Los Angeles have more than doubled year on year, rising from roughly $2.1–2.2/USG in 2025 to around $4.7–4.8/USG in April 2026, placing the region at the extreme end of a global price spike.
The drop in Asian exports reflects Asian refiners’ cutting runs and keeping more fuel at home, leaving fewer barrels available for external trade. For California, increasingly dependent on these flows, the real squeeze is still to come. March-loaded cargoes are still arriving (although already at lower volumes), with Hormuz still closed, April loadings by Asian suppliers point to only a handful of cargoes reaching the state in May. More so, the impact of the Benicia refinery closure in April has yet to fully show up in the local market.
This is no longer a short-term squeeze but a deeper shift in how the market functions. With fewer refineries, rigid fuel specifications and limited domestic supply routes, California is being pulled further into an already strained global system. Authorities are now weighing temporary waivers on CARB-gasoline and diesel standards to ease import constraints, but for now the direction of travel is clearly negative.
By Natalia Katona for Oilprice.com
