2026 Preview: West Coast Refined Product Market Begins New Year ‘Walking a Tightrope’
The U.S. West Coast fuels market, which will enter 2026 with the lowest refining capacity in years, will see another decline in April, when Valero Energy closes its 150,000 b/d Benicia plant in Northern California, likely raising unpredictability in a region long marked by price volatility. The scheduled shutdown of the Benicia refinery and the late-2025 closure of the Phillips 66’s 156,000 b/d Los Angeles plant will reduce the state’s refining capacity by about 20%.
“California’s fuel market is walking a tightrope stretched between heavy regulatory burdens and unchanging consumer demand,” Alessandra Magnasco, senior director of government affairs with the California Fuels and Convenience Alliance, said. Refining executives are also looking at a challenging operating environment.
“California has been pursuing policies to move away from fossil fuels for the past 20 years and the consequence is the regulatory and enforcement environment is the most stringent and difficult of anywhere else in North America,” Valero Chief Executive Lane Riggs said last spring when the company said it was planning to close the Benicia plant. That refinery, which represents about 9% of California’s total processing capacity, is more expensive to maintain than Valero’s other plants and faces “challenging” state regulations, Riggs said at the time.
Weekly West Coast (PADD 5) refinery utilization rates were strong before 2020, with the annual average often exceeding 88% and peaking at 99.2% in June 2018, a reflection of tight operating conditions and high regional demand, according to Energy Information Administration data. The annual average utilization rate during the Covid-19 pandemic plummeted to 72.5% in 2020, the EIA data showed.
While PADD 5 refinery run rates recovered from pandemic lows, they subsequently recovered, they remained well below the pre-2020 levels, ranging from 83% to 86% through 2024. In 2025, refinery rates fell as low as 70.9% in the week ended Nov. 14.
In 2026, the remaining refineries “will likely need to run at or near maximum capacity for extended periods just to maintain supply balance, a pretty fragile set-up,” one market participant told OPIS, adding “I don’t think that’s really possible.” The loss of the Phillips’ refinery and the pending shutdown of Benicia remove a critical supply buffer, making the West Coast particularly vulnerable to volatile price moves, according to several market participants.
The loss of the two facilities comes after Phillips’ converted its Rodeo, Calif., refinery to renewable fuel production in early 2024 and the 2020 shutdown of Marathon Petroleum’s Martinez’s refinery.
“You’ve actually lost three refineries [in Northern California] since the pandemic,” Megan Boutwell, president of analysis firm Stillwater Associates, said. “If there is something like a refinery turnaround in Southern California, normally they would contract supply from Northern California refineries. Now,
they have to scramble to find it somewhere else, which is probably foreign imports.”
An October fire at Chevron’s 290,500 b/d El Segundo refinery disrupted jet fuel output and sent spot prices up by about 30cts/gal. According to OPIS data, assessed cash differentials for Los Angeles jet fuel strengthened by more than 58cts/gal over the nine trading days that began on Oct. 2.
“Another disruption or extended turnaround at any of the remaining Los Angeles refineries could cause price volatility similar to, or greater than, that jet fuel jump,” a second market participant warned. “Any disruption even close to that will have prices spiking in the short term. No way around it.”
With in-state production declining, the West Coast must increasingly rely on imports to meet demand, according to Stillwater. Gasoline imports into the West Coast averaged 129,000 b/d in 2025, up from 64,000 b/d in 2024 and 56,000 b/d in 2023, according to EIA data. “If even one of the seven remaining refineries goes offline, it can take 10-34 days to bring in replacement fuel, plus about 15 days of approvals before a ship can even depart,” Magnasco said.
That potential month-long schedule for bringing in outside supply could emerge as a key driver of higher risk premiums for CARBOB, CARB diesel, and Los Angeles jet fuel prices, according to a second spot market participant. California’s boutique gasoline blend complicates imports, as not all refiners are capable of producing compliant fuel.
Market sources said they expect refineries in South Korea and India will be the primary suppliers of replacement fuels. By summer 2026, gasoline import volumes could surpass 2025’s record highs, according to EIA data and imports of jet fuel will be critical for the region.
Ryan Cummings, chief of staff at the Stanford Institute for Economic Policymaking, said the overall susceptibility to supply outages could continue even if the Benicia refinery is used as a terminal for imported refined products. “The loss is still going to be around 10% of total supply in the state,” he said. “In that sense, we’re shrinking the set of refineries that are subject to disruption if Valero replaces its production with consistent cargos that are coming in on a consistent basis.”
Even if the refinery will be able to accommodate higher levels of imports, Cummings said “I don’t actually see that big of a difference in terms of prices going forward.” Further, Magnasco warned that California’s reliance on foreign suppliers raises national security concerns. “When the West Coast must rely on foreign suppliers for essential fuel with limited domestic redundancy, it becomes vulnerable to disruptions far beyond its borders,” he added.
Phillips 66 will rely on CARBOB production at its Ferndale, Washington, refinery to help offset some of the production lost at the shuttered Los Angeles shutdown, according to the EIA. And some Pacific Northwest refiners may send more products south, according to a third market participant. “During regular operations, you can expect the PNW to be able to send CARBOB down when needed. They can certainly make it,” the third participant said. But the Pacific Northwest is also exposed to regional vulnerabilities, as demonstrated by a November disruption on the Olympic Pipeline.
The 400-mile system that moves gasoline, diesel, and jet fuel from Puget Sound refineries to Seattle, Tacoma, and Portland, was shut down in November after a fuel leak was discovered near Everett, Wash. The leak led BP to close sections and eventually the entire system for nearly two weeks.
As the Pacific Northwest’s primary fuel artery, the pipeline closure led the governors of Washington and Oregon to declare states of emergency after spot prices for PNW regular sub-octane rose by more than 20cts over from Nov. 12 to Nov. 18, according to OPIS pricing data.
Reporting by My Nguyen, mynguyen@opisnet.com and Shaheer Naveed, snaveed@opisnet.com; Editing by Bayan Raji, braji@opisnet.com and Jeffrey Barber, jbarber@opisnet.com