Experts roast Gavin Newsom for latest price gouging actions: 'Needs to be extremely educated'

Petroleum and oil market experts blasted California Democratic Gov. Gavin Newsom after he unveiled a plan to combat alleged price gouging by major oil corporations.

Newsom announced last week that California would begin punishing Big Oil companies with a financial penalty when they are found to have increased gasoline prices excessively. The California governor said the action, which he unveiled with Democratic state Sen. Nancy Skinner, would deter price hikes and "keep money in Californians’ pockets."

"Big Oil has been lying and gouging Californians to line their own pockets long enough," Newsom said in a statement.

Over the course of the last year, California has consistently recorded the highest average gas prices of any state, even surging past $6 per gallon in both June and October, according to data from the Energy Information Administration. While pump prices have fallen considerable in the state over the last two months, at an average of $4.56 a gallon they are still far higher than they are in any other state.

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The average price of gasoline nationwide is $3.39 per gallon, 35% lower than the average in California.

"California consistently is the most expensive state in the nation for gasoline prices due to extensive regulations," Patrick De Haan, the head of petroleum analysis at GasBuddy, told FOX Business in an interview. "Unfortunately, it's the reason why prices are so high. Because politicians in California have chased away investment, they've chased away oil refineries."

"You compare it to a state like Texas where the oil industry is welcomed and regulatory burdens are much lower and, obviously, gas prices are lower," he continued. "You can't convince me in a solid argument that oil companies are only ‘gouging’ or profitable in California."

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De Haan noted that, unlike other states, California mandates a higher-grade fuel to be sold during summer and fall months. The fuel type is intended to reduce emissions and pollution, but is far more expensive for refiners to produce and consumers to purchase.

In late September, Newsom ordered the California Air Resources Board to issue a temporary reprieve allowing refiners and gas stations to sell the cheaper winter blend earlier than normally allowed. The move, which effectively lifted an environmental regulation, was a large reason gas prices have fallen in the state. Still, the action was temporary and Newsom hasn't made any indication he would support permanently striking the rule.

"I don't know if Newsom's getting bad information or needs to be extremely educated when it comes to economics, but this rhetoric is going to undermine investment, take money away from oil companies that may have gone into maintenance — maintaining their facilities to making sure that outages don't happen," De Haan said. "It's what Europe has been doing and that has led them down this road to being kind of on an island of its own." 

"And California has been on an island of its own for many years because of all of the unique regulatory burdens on oil companies there and now to implement a windfall tax serves as more regulatory burden that will actually drive prices higher for consumers," he added.

De Haan said he would be open to personally advising Newsom since he "doesn't have experts around him to explain to him what's going on."

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In October, a series of routine and unexpected refinery closures forced prices to surge beyond $6.20 per gallon in California, near the all-time high set in June. Onerous eco regulations have already prevented investment in new refineries in California, meaning the closures led to a significant fuel supply crunch in the state.

"The Biden administration and people for a while have been bashing oil production. They're making it more difficult with canceling pipelines, delaying permits, things like that," David Kreutzer, the senior economist at the Institute for Energy Research, told FOX Business. "California does it even more and they have a particular problem that their petroleum market is isolated and requires special blends for their gasoline. It doesn't make sense for refiners outside of California to do it."

"So, if there's a refinery outage or a spike in demand, then California prices spike up and there's no help coming from the rest of the country because they can't sell the gasoline that California requires — the particular blends," Kreutzer continued. "So, California's been susceptible to price spikes for a while, but they also have more onerous regulation on refining capacity."

Petroleum refining capacity has fallen by more than 17% in the West Coast region that includes California since it peaked in 2010, according to federal data. Overall, domestic consumption of all fuel types has increased about 5% during that same time period.

In addition, a leading industry group echoed De Haan, arguing that Newsom's price gouging penalty would lead to even higher prices for consumers.

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"Whatever Governor Newsom wants to call it, his plan is a tax and imposing more taxes is not the way to lower costs for families," Kevin Slagle, a spokesperson for the Western States Petroleum Association, told FOX Business. "What lawmakers and the Governor should use this special session for is to reconsider the regulations and costly public policies that make California the most expensive tax and regulatory environment in the country."

President Biden and top administration officials have also blamed oil companies for high prices on multiple occasions. In October, the president threatened oil companies with a federal windfall tax on their profits and remarked it was time for companies to "stop war profiteering."