Tariq Nelson

…gas is still high? I was wondering that the last few times I filled up. I was hoping that gas would be near $1/gallon by now. Oil prices have continued to drop, but gas prices have gone back to near $2/gallon. What’s the deal?

Here is an explanation

Crude oil prices have fallen to new lows for this year. So you’d think gas prices would sink right along with them.

Not so.

On Thursday, for example, crude oil closed just under $34 a barrel, its lowest point for 2009. But the national average price of a gallon of gas rose to $1.95 on the same day, its peak for the year. On Friday gas went a penny higher.

[...]

Right now, in an unusual market trend, West Texas crude is selling for much less than inferior grades of crude from other places around the world. A severe economic downturn has left U.S. storage facilities brimming with it, sending prices for the premium crude to five-year lows.

But it is the overseas crude that goes into most of the gas made in the United States. So prices at the pump will probably keep going up no matter what happens to the benchmark price of crude oil.

Oh yeah…now why didn’t I think of that?

Now that the premium oil is suddenly very inexpensive, refiners elsewhere can’t get their hands on it.

“It’s so cheap,” said Lynn Westphall, the senior VP of external affairs at San Antonio-based Tesoro, which owns a half dozen refineries on the West Coast and Hawaii. “But you can’t just build a pipeline to everywhere. We know we can’t get it.”

Tesoro’s refineries in North Dakota and Utah use locally drilled oil and Canadian oil, which also has been running about $10 more per barrel than West Texas crude.

So why not build more pipelines? Because investing billions of dollars over several years makes no sense when the prices could just flip a year from now to where they were before.

So, no joyriding for the foreseeable future

Filed under: Changing World, News