CA Gas Prices Kept High By Tightly Regulated Market

The price run sparked howls of protest from angry motorists and calls for investigations by California Democratic U.S. Sens. Dianne Feinstein and Barbara Boxer. But the reason refiners made a killing while retailers such as Arya lost their shirts isn't conspiracy, it's economics. Oil companies operate what amounts to a legal oligopoly in California — an arrangement that probably will contribute to more wild gas spikes in the future.

That's because the Golden State's gasoline market is essentially closed. The state's strict clean-air rules mandate a specially formulated blend used nowhere else in the country. Producers in places such as Louisiana or Texas could make it, but there are no pipelines to get it to the West Coast quickly and cheaply. As a result, virtually all 14.6 billion gallons of gasoline sold in California last year were made by nine companies that own the state's refineries. Three of them — Chevron, Tesoro and BP — control 54% of the state's refining capacity.

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