SIOUX FALLS, S.D. (KELO) — $4 gas is likely coming to the Midwest and a tech company that monitors fuel prices says it’s going to stick around for a while.
GasBuddy is a technology company based in Boston monitor retail fuel prices. Its 2022 fuel outlook predicts an average $4.11 per gallon of gas in April and a high of $4.25 per gallon in May. While the per gallon price will drop some it won’t fall below $4 until November.
But prices in some other states could be much higher than $4.25 or even $4.50 per gallon.
“California could be heading for $5.50 per gallon with more stations charging $6 and beyond,” said Patrick De Haan, head of petroleum analysis at GasBuddy said in a March 7 news release.
Why are prices so high? Don’t yell at the gas station
“Usually each spring we go through this transition to summer blend fuel that’s something already (happening),” said Jeff Lenard, of the National Association of Convenience Stores, on March 7. “But there’s two other things that are really complicating things this year. No. 1 is the rapid return to what we perceived as normal, which is pre-pandemic. You add to that to that the Russian invasion of Ukraine and the unknowns about 1/10th of all oil produced in the world on a daily basis.”
Lenard said those factors are causing oil prices to surge to $130 a barrel.
Russia is the world’s third largest oil producer behind the United States and Saudi Arabia, according to the International Energy Agency.
“We’ve never been in this situation before, with this level of uncertainty. As we lose a major global producer under the weight of deserving bipartisan sanctions for invading a sovereign country, the cost is high. Americans will be feeling the pain of the rise in prices for quite some time, with little good news foreseen,” De Haan said in the news release.
“As oil prices surge what does that mean with gas prices?” Lenard said. If the price of a barrel of oil goes up by $1 that is about 2.5 cents per gallon, he said If oil jumps $10 that means per gallon that oil just went up 25 cents per gallon.
“One would expect that would reflect itself at the pump…,” Lenard said.
It’s not just drivers paying increased prices, retailers are also paying higher wholesale prices for gas.
“Right now, what retailers are seeing is there’s there is not a supply outage or shortage…,” Lenard said. “But we’re seeing now this is purely an increase in wholesale gas prices led by higher oil prices. And you’re seeing that at the pump.”
The day’s gas price at the pump is set to anticipate future prices in whole sale prices, Lenard said. They evaluate what will it cost them to buy the next supply and not what is in their supply tank.
Convenience stores account for about 80% of the gas sold in the U.S., Lenard said. They don’t like high gas prices because it can make drivers unhappy and can change buying patterns inside the store, he said.
A typical gas semi trailer contains 8,000 gallons of gas which usually fills a store’s gas storage tank. A typical convenience store will sell on average of about 4,000 to 5,000 gallons a day, Lenard said.
A store may search to find the lowest wholesale price each day to fill its storage tank, Lenard said. Some gas is bought on contracts, he said.
Lenard said as of March 7, gas retailers were not doing better than they were a week ago, despite increased gas prices.
So far, most customers understand why there are increases, Lenard said.
Gas prices have been high before
Supply has driven at least two recent spikes in gas prices.
In 2021 the cyber attack on the Colonial Pipeline drove prices up to $3 a gallon. It was the first time gas reached that per gallon price since 2014.
Lenard said the higher prices were driven by shortage in supply.
Gas prices also rose dramatically for a week in 2017 when Hurricane Harvey disrupted fuel production in the Gulf Coast. The wholesale price of gasoline increased 13% between Aug. 25, and Aug. 30, according to the Federal Reserve in St. Louis.
Traders responded knowing the “supply of gasoline to nationwide retail markets would be reduced in the days and weeks ahead,” according to the Federal Reserve in St. Louis.
So far, it’s not a supply issue now, Lenard said on March 7.
But if sanctions covering oil from Russia are imposed there could be a supply issue.
Lenard said about three million of the 10 million barrels of oil produced in Russia each day would need to be replaced each day if there were sanctions.
The Biden Administration has released 30 million barrels of oil from the Strategic Petroleum Reserve but that’s not a large amount considering the U.S, according to the Energy Information Administration, used about 18 million barrels of oil a day in 2020.
The U.S. is the world’s largest producer of oil but did reduce production during the COVID-19 pandemic. But the oil is deep and the process to ramp up production can be more time-consuming in the U.S. compared to other countries.
Saudi Arabia is better positioned to supply more oil quickly, Lenard said.
Saudi Arabia is a member of OPEC and that would have an impact on a decision to supply more oil.
Noem says Keystone would be helpful; is she correct?
Governor Kristi Noem posted on her governor’s Twitter account on Feb. 15 and Feb. 24 that the Keystone Pipeline would have kept gas prices low during this inflationary period.
Maybe so, maybe not, is the short answer.
As of March 7, experts have said increases in gas prices since the Russian invasion of Ukraine are not because of a supply shortage, so if all the oil transported by Keystone stayed in the U.S., it may not have made a difference on gas prices.
President Joe Biden stopped the construction of the Keystone Pipeline in 2021.
The pipeline would have transported 830,000 barrels a day from Canada to refineries in the Gulf Coast.
Not all of that oil would have stayed in the U.S., according to multiple sources.
Other sources state that the oil, or most of it, would have stayed in the U.S.
Lots of the oil refined in the Gulf Coast is exported to other countries.
Reuters reported on Feb. 11 that Canada set a record for oil exports in 2021.
The U.S. was a net exporter of oil in 2020, according to the U.S. Energy Administration.
Proponents of the pipeline have said it would be a stable source of oil in the U.S. A Jan. 12, 2015, U.S. Senate report said “In the case of the original Keystone pipeline, the Department of State determined that the pipeline was in the national interest because it increased market access to crude oil supplies from ‘a stable and reliable trading partner, Canada, that is in close proximity to the United States.”’