Why the price of gas is rising

KELOLAND.com Original

SIOUX FALLS, S.D. (KELO) — The average price of gas in South Dakota as of Tuesday is $3.29/gallon, according to AAA. This price has climbed one cent since Monday and is forecasted to continue rising.

According to Shawn Steward, spokesman for AAA South Dakota, the current rise in price is due to the price of crude oil, from which gasoline is made.

“Crude oil prices generally make up 50-60% of the price that we see at the gas pumps,” he said.

Part of the reason for the hike in crude oil price, says Steward, is a shortage of oil producers in the U.S.

“That was exacerbated the extremely low prices that we saw about a year ago during COVID,” he said. “A lot of people that were drilling and producing oil and gas previously pulled out of the market — it didn’t make business sense.”

This reason for the rising prices is backed up by the U.S. Energy Information Administration (EIA), which reports that “gasoline prices tend to increase when the available supply of gasoline decreases relative to real or expected gasoline demand or consumption.”

Now that prices are back up, Steward says some of those producers who left the industry due to the low demand level seen last year might consider returning. This, he said, would help with the rising prices.

One thing that is likely not causing the hike in South Dakota’s gas prices, according to Steward, is the cancellation of the Keystone XL pipeline. He points out that the effect of the pipeline’s cancellation is difficult to factor into current gas prices due to the fact the line was never operational.

“More likely [to affect things] would be a situation like we saw earlier this year in the Southeast, where a pipeline was interrupted for a time,” said Steward.

Another factor that’s driving up prices of crude oil is the Organization of the Petroleum Exporting Countries (OPEC).

“Just recently [OPEC] decided against an increase in production, which likely would have impacted gas prices on the positive by providing more supply into the system,” said Steward.

Steward says the thought behind this decision is that OPEC and its partners are making up for profits they lost when prices and demand fell so sharply last year.

OPEC member countries produce around 40% of the world’s crude oil, making them an important factor in the price of fuel. The United States in not a part of this group. A greater breakdown of the dynamics driving crude oil prices can be found on the EIA website.

Steward says that as a whole, America doesn’t have much of a say in crude oil prices.

“Ultimately, OPEC and Russia and other oil producing partners involved — they have the ultimate say in what they do with their pricing and production,” Steward explained.

This lack of America’s ability to unilaterally ‘fix’ its fuel demand issues is highlighted in a report by the National Association of Convenience Stores (NACS), which questioned whether sitting presidents can be really blamed or credited for the price of gas.

Going back to 2008, there were concerns that rampant speculation in the financial markets drove up oil prices over the first half of the year. External forces, rather that policymaking, played a huge role affecting supply and demand related to oil prices, which is the biggest factor in the price of a gallon of gas.

NACS

NACS goes on to cite other instances of external forces affecting the price of fuel over the past two decades including 9/11, the Iraq War, Hurricane Katrina, the Arab Spring and more.

Energy policy and legislation can absolutely play a role in influencing the cost of fuel, but it is often only one factor among many.

One such outside factor is the increased demand we are currently seeing. Fuel prices normally decline in the fall as a result of people travelling less as summer comes to an end. Steward says this year that’s not the case.

“Demand has stayed pretty steady this fall,” said Steward. “Typically, this time of year we start seeing a drop in demand for gasoline as summer vacations are over and kids are back to school — this year, demand has stayed pretty strong, and like we talked about before, supply has been a little bit tight.”

Throw in heightened crude oil prices and Stewart outlines a recipe for high prices at the pumps.

Stewart says it’s difficult to forecast future gas prices, but that at the moment a drop in prices does not seem to be in the cards for the near future. There are however some ways you can minimize the blow to your bank account when you hit the road.

Make sure that your car is in good working order; get it tuned up, make sure that you have clean air filters. Tires are another big factor, so make sure that your tires are properly inflated. You get better gas mileage when your tires are not low.

Shawn Steward, AAA

Some final tips from Steward: Watch your speed and clean out your car. He says that avoiding speeding and “jackrabbit starts” will keep pressure off your engine and allow it to run more efficiently. As for the cleaning, he says that removing excess cargo can reduce weight, which will also improve fuel efficiency, helping your car go farther on a tank.

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