California's Division of Petroleum Market Oversight (DPMO) has launched an investigation into gas stations across the state suspected of using AI-powered pricing algorithms to artificially inflate fuel costs. The DPMO, an independent agency within the California Energy Commission, began scrutinizing potential price gouging in March 2026, as the Iran war caused global fuel prices to spike. The agency issued subpoenas to stations charging "anomalously high prices" and not cooperating with requests, citing concerns that their prices were not justified by increases in input costs.
The DPMO has observed "extraordinarily high prices" at some gas stations, reaching as much as $8 a gallon, which they believe are out of line with crude oil and gasoline futures prices. Tai Milder, director of the DPMO, indicated that early indicators suggest the Iran conflict is significantly boosting industry profits, and the agency aims to prevent refiners, marketers, or retailers from exploiting the situation to increase profits at consumers' expense. Separately, a lawsuit is being investigated against brands like Circle K, Marathon/ARCO/ampm, and others for alleged use of automated pricing models that may have overcharged consumers in various California areas.
State tax official Gentian Droboniku also highlighted significant price variations across California. A recent committee hearing in Sacramento revealed a $1.16 difference per gallon between two stations just a block apart in San Diego, and a $1.76 per gallon difference between the 100 most expensive and 100 least expensive stations between January and September 2025. Droboniku noted that branded stations typically sell gasoline at higher prices than unbranded or "hypermart" stations. He presented evidence from a German study showing that algorithmic pricing increased retail margins by up to 15%, suggesting potential tacit collusion. Assembly Bill 325, which prohibits businesses from using shared software algorithms to coordinate prices, went into effect this year.
The average price for a gallon of regular in the San Diego area reached $6.21 on May 6, 2026, compared to the national average of $4.13. As of June 2026, the average in San Diego was $5.83 per gallon, demonstrating a $1.70 difference from the national average. The investigations aim to bring transparency to an opaque market where algorithms may be telling sellers what to change to maximize profit, potentially leading to increased costs for California consumers, who already face the highest gas prices in the nation.
