In a recent special session, California Governor Gavin Newsom signed billed ABX2-1 into law mandating the refined fuel inventory levels oil companies must keep in stock at all times. This bill was passed and signed under the guise of providing more stable prices to California consumers. Sounds like a good idea, right? But….
This bill was rushed through without full consideration of its negative impacts. Namely, the likelihood of creating artificial shortages by forcing refiners to withhold (store) fuel that would otherwise meet market demand, the inherent issues created by California’s winter and summer fuel blend requirements resulting in unusable reserves taking up valuable storage space during peak demand, the increased reliance on imported oil exposing us to foreign price manipulations and increased emissions, and the increased regulatory burden causing refiners to leave the state, thereby, reducing competition and supply.
Another consequence as outlined by the California Energy Commission (CEC) is it may “artificially create shortages in downstream markets.” Those downstream markets are Nevada and Arizona. With these two states sourcing their fuel from California, what do you think will happen when refiners are close to their mandated fuel inventory levels during peaks or need to take a line down for maintenance? They will short our neighbors, which will drive up prices for them and us.
It is not often we find ourselves on the same side as oil companies, but we are in this case. This legislation was pushed through without exploring the real reasons for California’s high fuel prices, including the roughly $1.30/gallon in taxes.