How to Navigate the Impact of Closing Oil Refineries in California

Recent developments in the energy market are set to reshape the fuel landscape on the West Coast, yet they haven't received the widespread attention they warrant. The Phillips 66 and Valero oil refineries in California are scheduled to shut down permanently, a strategic shift that will have ripple effects on fuel prices throughout the region. Understanding the details of these closures is the first step for shippers to prepare for the market volatility ahead.

This article will guide you through the specifics of these shutdowns, how they will affect fuel premiums, and what it means for your transportation network.

Key takeaways

• Significant capacity reduction: The closure of the Phillips 66 refinery in Los Angeles and the Valero refinery near San Francisco will remove a combined 17.5% of California's total refining capacity from the market.
• Rising West Coast premiums: With a substantial drop in local supply, businesses should anticipate higher fuel premiums not only in California but across the entire West Coast.
• Divergent impact on fuel types: Gasoline prices are expected to experience a more significant increase. The impact on diesel will likely be softer due to the state's large and established renewable diesel supply.
• Increased import reliance: The loss of local production will make California and the surrounding region more dependent on fuel imports from the U.S. Gulf Coast and Asian markets, potentially affecting supply chain reliability.

Which oil refineries in California are closing?

Two oil refineries in California are closing, marking a pivotal change for the state's energy infrastructure.

1. First is the Phillips 66 refinery in Los Angeles, which produced its final barrel of traditional fuel in October 2025. The closure is primarily driven by regulatory pressure, declining gasoline demand in California, rising costs to comply with stringent environmental regulations, and competitive disadvantages associated with the state's unique fuel blend requirements.
2. The second is the Benicia refinery in California owned by Valero near San Francisco, which plans to close its operations in April 2026. This closure is attributed to several factors, including increasingly stringent environmental regulations and high operating costs. Benicia's closure is also part of a broader strategic reassessment of Valero's footprint in California. The company has potential plans to exit the state entirely, as it seeks to optimize its resources and adapt to evolving market conditions and regulatory landscapes.  

Together, these facilities represent a significant portion—17.5%—of the state's capacity to refine crude oil into products like gasoline, diesel, jet fuel, propane, and other petroleum derivatives.

How will refinery closures in California affect fuel prices?

A core principle of economics is that a reduction in supply, with demand remaining constant, leads to higher prices. The shutdown of these oil refineries in California will directly translate to higher fuel premiums across the West Coast.  

Because the West Coast operates as a relatively isolated fuel market with limited port connectivity and port infrastructure, it cannot easily draw supply from other regions of the U.S. This makes it particularly vulnerable to local production disruptions. The loss of nearly one-fifth of California's refining capacity means there will be less locally produced fuel to meet demand, forcing suppliers to use alternative energies or be dependent on imports from the Gulf Coast and Asian markets.  

Understanding the different impacts on refined products

While overall prices are expected to rise, not all fuels will be affected equally.

• Gasoline: The market for gasoline is expected to see a more pronounced price increase due to the direct loss of production capacity.
• Diesel: The impact on diesel prices will likely be more moderate. This is largely because California has a robust renewable diesel market. In fact, renewable diesel currently accounts for 70% of the state's total diesel consumption. This existing supply of alternative fuel will help cushion the market from the full impact of the lost fossil diesel production.
• Other refined products: Jet fuel, propane, and other petroleum derivatives in a crude oil barrel will also be impacted, potentially leading to upward price pressure and supply challenges.

What this means for your transportation budget

For shippers and carriers, the primary consequence of these closures is a necessary shift in fuel sourcing. With less fuel being produced locally, California will become much more reliant on imports to meet its needs.

This means more fuel will need to be transported from distant markets, primarily the U.S. Gulf Coast and Asia. This increased reliance on long-distance logistics introduces new variables and potential vulnerabilities into the supply chain, from shipping delays to geopolitical risks in sourcing markets. Proactive network and fuel procurement strategies will be essential to mitigate these new challenges.

To address these potential disruptions and optimize your supply chain, it’s crucial to adopt solutions that keep pace with fluctuating fuel costs. By utilizing market-based fuel reimbursements through Fuel Recovery, you can ensure that your business is paying fuel prices accurately aligned with the lanes your goods are moving on. This approach not only promotes transparency, but also empowers you to manage your fuel spend effectively and maintain a competitive edge in a dynamic diesel market. To learn more about Fuel Recovery and how it can benefit your business, schedule a meeting with one of our industry experts. 

Frequently asked questions about oil refineries in California

What is the total refining capacity being lost from these closures? 

The shutdown of the Phillips 66 and Valero refineries will result in a combined loss of 17.5% of California's total in-state refining capacity.

Why will diesel fuel prices be less affected than gasoline prices? 

Diesel prices are expected to see a softer increase because California has a strong renewable diesel market, which makes up 70% of the state's diesel pool. This existing supply helps offset the loss of conventional diesel production.

How will California and the West Coast compensate for the lost fuel production?

The region will need to increase its reliance on fuel imports. Supply will primarily be sourced from the U.S. Gulf Coast and various Asian markets, which will be transported to the West Coast via sea.

What regions will be most affected by these oil refinery closures? 

While the closures are in California, the impact will be felt across the entire West Coast. States like Oregon, Washington, Arizona, and Nevada, which receive fuel from California, will also experience higher premiums and potential supply adjustments.