California moves to regulate its gasoline refining margin

Gas prices are advertised at Chevron station in Los Angeles
Gas prices are advertised at a Chevron station as rising inflation and oil costs affect the consumers in Los Angeles, California, U.S., June 13, 2022. REUTERS/Lucy Nicholson/File Photo

March 29 (Reuters) - California can begin regulating how much profit the state's oil refiners can earn on selling gasoline beginning this summer under a bill signed into law that oil companies rejected as likely to raise costs.

The state's Democratic Governor Gavin Newsom on Tuesday signed the bill empowering the California Energy Commission to set a state gross gasoline refining profit margin, and to levy penalties for exceeding it. The law takes effect June 26.

Chevron, the largest oil refiner by volume in the state, called the measure "a step backward" and its approval "likely to result in less reliable, less affordable fuel for state motorists," said spokesperson Ross Allen.

Energy investment firm Tudor Pickering & Holt said this week that independent refiner PBF Energy (PBF.N) has the largest single exposure in the California market with 32% of its refining capacity in the state.

PBF did not respond to a request for comment.

"Refiners will also have to report more information to the watchdog," said Matthew Blair, Tudor Pickering's managing director of refiners, chemicals, and renewable fuels research.

California is the largest U.S. market for motor fuels but has some of the highest retail prices because it is isolated from Gulf Coast and Midwest refining centers.

This makes California reliant on a shrinking number of West Coast refineries and fuel imports from Asia and Europe.

Those limits make the state vulnerable to plant outages and spikes in crude oil prices such as the summer and fall of 2022.

The proposed rules will do nothing to increase gasoline supply to the West Coast, said John Auers, managing director of Refined Fuels Analytics. "It won't do any good and it will do harm."

The uncertainty of possible penalties will weigh on the industry, said David Hackett, chairman of fuels consulting firm Stillwater Associates.

"I think that's exactly what they are doing: Death by a thousand cuts."

(This story has been corrected to say that the bill has been signed into law, not awaiting vote by legislature)

Reporting by Erwin Seba; Editing by Richard Chang

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