New gas tax, Mideast strife could hit state with double whammy at the pump
Beleaguered California motorists, tighten your seatbelts and brace yourselves.
With gas prices already on their seasonal uptick as more people take to the road, other factors have quickly conspired to bring us even more pain as we fill up our tanks in the coming weeks and months:
California lawmakers late Thursday narrowly passed a $52 billion transportation package that will hike gas taxes 12 cents a gallon starting Nov. 1. Oil prices globally have jumped in recent weeks. A number of California refineries have scaled back production for repairs and maintenance. And now the Syrian chemical-weapon attack and subsequent U.S. missile strike have cranked up the pressure cooker of the Middle East, a trend that some experts say could eventually hit motorists hard in the pocketbook.
“We woke up this week to find all these factors that together will impact gas prices in the very near future, so get ready,” said Allison Mac, an analyst with GasBuddy. “We’ve enjoyed low and steady pricing for a pretty long time now, but with oil prices ticking back up, that’s about to end. Plus, summer’s just around the corner, which means we’ll soon switch to summer-blend gasoline across the country, and that blend costs more because it’s more expensive to produce.”
While California’s new tax hike would mean only an annual bump of between $25 and $175 for residents, the combination of that higher cost on top of already-climbing prices at the pump creates gas-price anxiety. And with the increases coming after a relatively benign period of gas pricing for Californians, the coming uptick should feel even worse than it normally might.
In addition to federal taxes levied on gasoline, Mac says California is already high on the list of tax-heavy states, topped only by Pennsylvania, Washington and New York.
“So Californians,” she says,” are already paying 27.8 cents per gallon, and that will now rise even further.”
Gas prices in California and beyond may also experience an extra bump after the U.S. airstrike in Syria. Oil prices hit a one-month high on Friday after the United States fired Tomahawk missiles at a Syrian government airbase, sending shock waves through global markets and raising concerns that the conflict could spread in the oil-rich region. As of Friday morning, the average per-gallon price nationally for gasoline was $2.39, or an increase of about one penny from Thursday, and $2.99 in California, according to GasBuddy.
Gasoline prices nationwide had already inched higher this month, rising 4.2 cents to reach an average of $2.33 per gallon in the week ending April 3, GasBuddy said. Even before the Syria strike, consumers were forecast to pay more at the pump over the next few months, given the annual cycle of higher driver demand in the summer and as gas stations introduce a more expensive fuel blend, the AAA said.
“As we’ve seen in the past, oil prices hate turmoil,” said
GasBuddy senior petroleum analyst Patrick DeHaan said in a statement on Twitter. “It is too early to know how severe or how long the impact to oil prices may be.”
Although Syria has limited oil production, its location and alliances with big oil producers in the region mean any escalation of the conflict has the potential to increase supplyside fears.
“The larger concern for market participants is the prospects of deeper involvement for the US and other allies in Syria,” TD Securities analysts said Friday in a report. “With Russia condemning the attack, an escalation of tensions between the U.S. and Russia (and perhaps Iran) will be closely watched as a barometer of risk appetite.”
“Oil markets are back in bullish mode after the setback of the previous weeks. This news flow seems to bring geopolitical risks back on the radar,” said Frank Klumpp, oil analyst at Stuttgart, Germanybased Landesbank Baden Wuerttemberg.
Other analysts were more cautious, saying the conflict in Syria had no bearing on oil fundamentals and that the political risk premium could fall
as quickly as it had appeared.
“Typically, these kinds of events don’t really matter more than a few days, and this one definitely shouldn’t either,” said Peter Boockvar, chief market analyst for economic research firm The Lindsey Group, in a note.
Under Senate Bill 1, the new tax will add 12 cents to each gallon of gasoline in California, and the legislation also increases diesel taxes and boosts vehicle license fees. Those with cars worth under $5,000, nearly half of all drivers, would pay a $25 fee each year, while those with vehicles valued between $5,000 and $25,000 — about 40 percent of drivers in the state — would pay $50. Drivers of the highest-end luxury cars would pay as much as $175 more. The state also
would charge $100 per year, starting in 2020, for electric vehicles.
Analysts at the California State Automobile Association and the California Energy Commission agree that higher prices are around the bend. But not everyone is predicting a steep hike.
“This gas expert does not say that prices will rise 80 cents by Memorial Day,” Severin Borenstein, an economics professor at UC Berkeley’s Haas School of Business, told this newspaper in February, “though they could do just about anything.”