Phillips 66 to Produce CARB Gasoline, Boost California Fuel Supply

Phillips 66 PSX, a leading integrated energy company, is considering producing CARB gasoline at its Ferndale refinery in Washington. CARB gasoline is a cleaner-burning fuel that can help improve air quality as it emits fewer pollutants. Per the U.S. Energy Information Administration, producing CARB gasoline requires the usage of better processing techniques and costlier blending components. This special fuel blend has been mandated by the state of California to reduce air pollution, but its production is comparatively expensive.

Operational Shift at Ferndale Refinery

PSX has stated that it plans to start producing CARB gasoline to increase gasoline supplies in California. The company is ramping up operations at its 105,000 barrels per day (bpd) Ferndale refinery to begin producing CARB gasoline for delivery to northern and southern California. The decision followed Phillips 66’s announcement to close its Los Angeles refinery, with a capacity of 139,000 bpd, by the end of this year.

Phillips 66 CEO Mark Lashier stated that the company intends to compensate for the supply loss caused by the shutdown of its Los Angeles refinery. The company is working in partnership with California Governor Gavin Newsom and the state’s regulatory authorities to figure out how to maintain the supply to fuel markets across the state following the refinery’s closure. Notably, Phillips 66 has also considered securing new permits that allow for increased imports of fuel from offshore markets. PSX plans to redevelop its Los Angeles refinery site after shutting down operations and using it to generate long-term value for the company.

Impact of Refinery Closures on California's Fuel Market

Valero Energy, another major refining player in the United States, has announced that it intends to shut down or restructure its Benicia refinery in California by April 2026. Furthermore, the company is seeking the best alternatives for its other assets in the state, including the refinery at Wilmington, which boasts a refining capacity of 85,000 bpd. The shutdown of these refineries is expected to reduce refining capacity in the state, potentially leading to higher gas prices in California. The refinery closures were mainly due to unfavorable regulatory policies in California that are aimed at achieving cleaner energy targets and reducing emissions.

PSX’s Zacks Rank & Key Picks

PSX currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the energy sector are Flotek Industries Inc. FTK, Subsea7 S.A. SUBCY and Oceaneering International OII. While both Flotek Industries and Subsea7 sport a Zacks Rank #1 (Strong Buy) at present, Oceaneering International carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Flotek Industries specializes in green chemistry, which provides innovative solutions aimed at reducing the environmental impact of the energy industry. Flotek develops specialty chemicals tailored for both domestic and international energy producers, as well as oilfield service companies. These chemicals not only help reduce the environmental impact of hydrocarbon production but also lower operational costs.

Subsea 7 helps build underwater oil and gas fields. It is a leading player in the offshore energy industry worldwide and is engaged in providing engineering, construction, and related services at offshore oil and gas fields. The long-term outlook for energy demand remains positive, and Subsea7’s focus on cost-efficient deepwater projects strengthens the position of its subsea business.

Oceaneering International delivers integrated technology solutions across all stages of the offshore oilfield lifecycle. The company is a leading offshore equipment and technology solutions provider to the energy industry. OII’s proven ability to deliver innovative, integrated solutions supports ongoing client retention and new business opportunities, ensuring steady revenue growth.

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This article originally published on Zacks Investment Research (zacks.com).

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