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The gasoline-price rollercoaster is taking another upward climb in the wake of airstrikes in and around Iran and escalating geopolitical tensions, resulting in a sharp increase at the pump for San Diego drivers.
“Until we get some sort of clarity on the situation and, let’s call it a clear finish line as to when this is over, you can only say what you think might happen in the short term,” said Denton Cinquegrana, chief oil analyst for Dow Jones Energy.
The average price for a gallon of regular in the San Diego area has jumped 15 cents in the past week to $5.593 on Tuesday, according to AAA.
The average price of diesel has accelerated even faster, shooting up 26 cents compared to one week ago to $6.76 per gallon. Diesel prices are critical because trucks and ships that deliver goods to markets and food to grocery stores run on diesel fuel and when those transportation costs increase, they are passed on to consumers and contribute to inflation.
Average gasoline prices in San Diego “probably won’t hit $6 a gallon, based on where things stand at this moment,” said Patrick DeHaan, head of petroleum analysis at GasBuddy. “I would say that for the rest of the summer, you’ll probably be in a range of $5.25 to $5.75 a gallon … But there is still the potential that (military) escalations occur and we could go outside of either side of that range, with more risk on the upside.”
Nationally, the average price for a gallon of gas has taken a corresponding jump, rising 16 cents in the past week. The U.S. average stood at $4.019 on Tuesday.
That’s $1.50 less expensive than California’s statewide average, as per AAA. The Golden State is No. 1 in the nation, with Hawaii coming in second place at $5.431 per gallon.
Fuel and crude oil prices started to rise after the U.S. and Israeli forces launched joint airstrikes on Iran on Feb. 28. The Iranian regime responded by choking traffic in the Strait of Hormuz, where 20% of the world’s oil exports traverse.
A 60-day memorandum of understanding was reached between Iran and the Trump administration last month, and gas prices started retreating as an increasing number of ships passed through the strait.
But the truce didn’t last long.
Iran’s Islamic Republic Revolutionary Guard Corps launched a drone attack on a Singapore-flagged cargo ship on June 25. The Trump administration responded by directing retaliatory airstrikes and tensions have escalated since then.
Two U.S. soldiers died Friday after an Iranian attack on a military installation in neighboring Jordan and another died in Iraq on Saturday.
There are reports of tentative talks on a 10-day ceasefire but things remain touch-and-go, with fears that the conflict — now in its fifth month — will draw in other countries across the Middle East. Houthi rebels in Yemen who are aligned with Iran have threatened a naval blockade of Saudi Arabia.
The price of Brent crude — the international benchmark in the futures market — hit a five-week high of $91 a barrel on Tuesday morning.
But there’s another reason why fuel prices are rising.
Ukraine recently carried out successful drone attacks on Russian fuel refineries and power facilities. The strikes have degraded Russia’s domestic oil production and led the Kremlin on July 9 to decree a ban on all its diesel exports.
“This is now turning into a two-pronged story of not just the Strait of Hormuz, but also Ukraine indiscriminately attacking Russian oil refineries,” DeHaan said.
But if the U.S. already has sanctions in place against Russian crude oil and refined products, why would that affect diesel and gasoline prices in the U.S. in general and California in particular?
“Because the world in intertwined,” DeHaan said. “When refining capacity goes down in one area of the world … refining capacity elsewhere needs to fill the void. But you can’t make up for the void this time because refineries are already running full-tilt in the summer and Russia is a major refiner. There’s nowhere that you can just come up with 3 million barrels of additional refining capacity overnight.”
Fuel markets are very tight now, but Cinquegrana of Dow Jones Energy said drivers in San Diego and the U.S. should not worry about fuel supply shortages.
California is “a little bit more difficult, but you could see barrels come down from the Pacific Northwest on ships,” he said. “Maybe Southern California’s a little bit tighter, you could see barrels come from Northern California on barges as well.”
California is more vulnerable to disruptions in the global oil market than other states.
According to the California Energy Commission, 61.1% of the oil supplied to refineries in the state last year came from foreign sources — and that figure is expected to grow because of a pair of recent refinery closures.
The Phillips 66 twin facility in the Los Angeles area shut down late last year and three months ago the Valero refinery in the Northern California town of Benicia ceased operations at its 145,000 barrels-per-day site.
The Valero and Phillips 66 facilities combined to account for about 18% of California’s total refining capacity to process gasoline, diesel, aviation and other transportation fuels.
Over the course of the war with Iran, the highest average price in San Diego reached $6.213 on May 6. But that’s not the all-time high for the area.
Back on Oct. 5, 2022, the average for a gallon of regular reached $6.435, due to multiple reasons that included a string of maintenance issues at California refineries that slashed output.
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