RBOB Gasoline at $2.90/gal: Falling Crude Meets Widening Crack Spreads — Regional Supply Gaps Becoming Structural

Falling Crude, Rising Cracks: The Refined Product Squeeze

EIA projects US average retail gasoline prices to fall about 6% in 2026 to approximately $2.90/gal, driven primarily by lower crude oil prices (FACT: EIA STEO, January 2026). But the crude price decline is being partially offset by widening refinery margins. Gasoline crack spreads are forecast to be wider in 2026 than in the previous two years (FACT: EIA, January 2026).

The mechanism is straightforward: US refining capacity is shrinking. Phillips 66 closed its Los Angeles (Wilmington) refinery at end-2025, removing 139,000 b/d of capacity. Total US refining capacity is projected at approximately 17.9 million b/cd by end-2025, a 3% contraction (FACT: EIA, November 2025). Less capacity means tighter supply even with lower crude prices.

Crude oil's share of the gasoline price is falling to 43-44% in 2026, down from 50-53% in recent years (FACT: EIA STEO November 2025). This means even if crude prices fall further, gasoline prices are supported by the refining margin floor.

Where the Consensus Is Wrong: The West Coast Is Not Cyclical

Market forecasts typically use national average gasoline prices. But the West Coast (PADD 5) is structurally different. EIA forecasts the West Coast to average approximately $4.10/gal in 2026 — roughly equal to 2025 — while all other US regions fall below $3.00/gal (FACT: EIA, January 2026).

The difference reflects permanent capacity loss. The Phillips 66 Wilmington closure and Valero Benicia production reductions removed approximately 200,000 b/d of West Coast refining capacity. West Coast gasoline must now be imported from Asia or the US Gulf Coast, adding $1-2/gal in logistics and basis costs.

Spot gasoline prices in Los Angeles, San Francisco, and Portland have historically spiked more than $2/gal above New York RBOB during refinery outages (FACT: EIA, September 2025). With less local capacity, these outages are more frequent and more impactful.

Policy Layer: RFS Set 2 Raises the Cost Floor

EPA's final RFS Set 2 rule, published April 1, 2026, sets record-high renewable volume obligations: 25.82 billion RINs in 2026 and 25.98 billion in 2027 (FACT: EPA, April 2026). The rule reallocates 70% of small refinery exemption volumes from 2023-2025 into 2026-2027 obligations, adding approximately 2 billion RINs of demand.

EPA estimates the cost of RIN compliance at approximately $0.16/gal of petroleum fuel for 2026-27 based on 2025 RIN prices (FACT: EPA Response to Comments, 2026). While not a direct pass-through, this policy cost creates a floor under wholesale gasoline prices.

Biomass-based diesel and ethanol RIN prices rose more than 35% in Q2 2025 compared to Q1 2025 after the RFS proposal was released (FACT: EIA, Q2 2025). RIN price volatility adds a policy-driven component to gasoline supply costs that procurement teams must explicitly manage.

Regional Breakdown: The Three-Tier Gasoline Market

West Coast (PADD 5): $4.00-4.20/gal. Structurally tight due to refinery closures. Imports from Asia and Gulf Coast fill the gap at a premium. Buyers should secure regional index-linked contracts with diversified supply points.

Rest of US ($2.70-3.00/gal): Balanced to long. Gulf Coast refineries operate at high utilization, exporting surplus to East Coast and Latin America. Midwest benefits from ethanol blending and PADD 2 refinery capacity. Buyers should use NYMEX RBOB futures for hedging.

Globally: European gasoline markets are affected by Middle East supply disruptions and refinery closures. Asian gasoline markets are feedstock-constrained due to Hormuz disruption effects on refinery crude supply.

What We Do Not Know

The pace of additional US refinery closures. At least 3 more refineries are reportedly evaluating conversion to renewable diesel or biofuels (ESTIMATE: EIA, 2026).

The impact of potential RVP waivers for summer-grade gasoline. EPA can waive summer volatility standards in supply emergencies, affecting RBOB pricing (FACT: EPA, 2025).

Whether the RFS Set 2 rule's import RIN reduction policy will be implemented. EPA delayed the import RIN reduction, but its eventual implementation could reshape biofuel supply chains (ESTIMATE: EPA, 2026).