California gas prices are headed down despite Israel-Hamas war, experts say. Here’s why

Gasoline prices in California have been falling since the Israel-Hamas war broke out earlier this month, and it looks like they could drop as much as another 25 to 50 cents a gallon.

That’s the prediction of Patrick De Haan, head of petroleum analysis at GasBuddy, which tracks price trends.

While the Middle East conflict does pose a risk to the continued dip, De Haan and others see it as slight. What’s driving prices down in California are a variety of domestic factors, notably fully operational refineries and the switch to winter blend gasoline.

A gallon of regular gasoline sold in the state averaged $5.44 Monday, down 18 cents from a week ago and 35 cents from a month ago, according to AAA.

In the Sacramento area, the average price Monday was $5.28, down 19 cents from last week.

Other readings: Fresno area, $5.20 Monday, down 15 cents from last week; Modesto, $5.18, down 18 cents from last week; Merced, $5.40, down 20 cents from last week and San Luis Obispo, $5.71, down 14 cents from last week.

“The Middle East could eventually impact prices but we have all this relief in the pipeline coming,” said De Haan. California prices were around $6 a gallon at the start of October, as refinery shutdowns and more expensive summer gasoline helped drive up prices.

Summer gasoline, which meets tough environmental standards, is more expensive, and refinery shutdowns can disrupt supplies.

With refineries humming and winter blend gasoline available, said De Haan, retail prices should fall for the next few weeks.

The war’s impact

Hamas terrorists killed at least 1,400 Israelis and took hundreds hostage in attacks on October 7. Israel quickly struck back with air bombardments that have killed an estimated 5,000, Palestinian authorities say. It appears on the verge of a ground invasion of Gaza, which is controlled by Hamas.

While Gaza is not an oil producer, there’s fear that a wider conflict could ultimately impact on oil supply and prices.

“The really dark scenarios (today) involve the war broadening into a regional conflict. If it does not, the oil market disruptions should remain contained,” said Chris Lafakis, a director at the Moody’s Analytics economic firm.

“War between Israel and its immediate neighbors, including in Gaza, would probably not disrupt oil shipments very much,” said Severin Borenstein, energy economist at the University of California, Berkeley.

Oil prices jumped immediately after the war began. They’ve stabilized somewhat, but Monday’s range of about $87 a barrel is still somewhat above the price before the war.

Gasoline shortages?

What is unlikely is a repeat of the extreme scenarios of the 1970s, when Arab nations angry at American support for Israel dramatically cut oil imports to the United States, helping send prices way up and creating long lines to buy gasoline.

Borenstein saw another such scenario as “pretty unlikely.”

“The world oil market is very integrated these days and it would be difficult to prevent the oil finding its way to those major customers,” he said, and most major OPEC oil producers rely heavily on oil money for their government budgets.

He and others were also confident gas lines won’t return.

“Although those are frequently blamed on the Arab oil embargo, the real cause was gasoline price regulation that did not allow the price refiners got for their product to adjust when the price of crude oil adjusted,” Borenstein said.

In the early 1980s, the regulations ended. And throughout the last few decades, crude oil prices have jumped and supplies have been cut, but no widespread gasoline lines have developed.

There are other reasons for cautious optimism that a catastrophic scenario won’t unfold.

In response to the Arab oil embargo of the 1970s, the U.S. has had the Strategic Petroleum Reserve in Louisiana and Texas. It is currently at about about half of capacity, largely because of releases last year to combat potential shortages triggered by the Russian invasion of Ukraine and OPEC Plus production cuts. But it still holds hundreds of barrels of oil for use in emergency situations.

In addition, American oil production is at record highs. During the week ending October 13, domestic production was 13.2 million barrels, according to the federal Energy Information Administration.