Valero Shuts Down California Refinery, Gas Prices Expected to Surge

Valero Energy Corporation has accelerated the shutdown of its Benicia oil refinery in California, closing operations four months earlier than planned. The refinery, which has a capacity of 145,000 barrels per day, ceased operations on January 28, 2026, amid what experts describe as an "unprecedented oil crisis." This closure is anticipated to exacerbate California's already high gas prices, which averaged $4.23 per gallon in January, according to the American Automobile Association.

California gas prices expected to jump even higher as Valero closes refinery

The shutdown follows Valero's decision to scrap its crude oil contracts in October 2025, leading to speculation about the company's long-term commitment to the California market. Former Valero manager Mike Ariza noted that the company is not seeking to sell the refinery, despite efforts from state officials to persuade it to remain operational. Ariza attributed the closure to California's stringent regulations, which he claims have driven operating costs 26% to 37% higher than the national average.

California gas prices expected to jump even higher as Valero closes refinery

The closure of the Benicia refinery is expected to significantly impact fuel prices in California. With the state's refining capacity already strained, the loss of this facility could lead to further increases in gas prices. Additionally, the shutdown coincides with the California Assembly's passage of Assembly Bill 1421, which proposes a study on a new mileage tax to replace the existing gas tax. This proposed tax could cost California drivers between $228 and $1,026 annually, depending on their driving habits.

California gas prices expected to jump even higher as Valero closes refinery

Critics of the proposed mileage tax argue that it represents another financial burden on California residents, particularly in light of the state's nearly $3 billion budget deficit. The legislation does not impose the tax immediately but aims to fund research on rates and collection methods by the California Transportation Commission and the state Transportation Agency.

California gas prices expected to jump even higher as Valero closes refinery

Opposition to the refinery closure and the proposed mileage tax has emerged from various quarters. Critics, including industry experts and local residents, express concern that the combination of rising gas prices and new taxes will further strain household budgets. The sentiment among some stakeholders is that California's regulatory environment is driving essential industries out of the state, as evidenced by Chevron's relocation of operations to Texas and Phillips 66's shutdown of its Los Angeles refinery in October 2025.

California gas prices expected to jump even higher as Valero closes refinery

• “We are in an unprecedented oil crisis,” — Mike Ariza, Oil Expert

California gas prices expected to jump even higher as Valero closes refinery

• “Even after the state tried to convince Valero to remain open, they elected to shut down.” — Mike Ariza, Oil Expert

California gas prices expected to jump even higher as Valero closes refinery

As California grapples with the implications of the Benicia refinery's closure and the proposed mileage tax, further discussions and debates are expected in the state legislature regarding energy policy and taxation. The outcomes of these discussions will likely shape the future landscape of California's energy sector and its economic health.

California gas prices expected to jump even higher as Valero closes refinery