Posted in: Gas Prices,
by Patrick DeHaan on Jun 20, 2013 01:34 PM
Have you looked at the gas pump lately? Odds are if you're on the West Coast, you've been seeing the sign change to the up side. If you're in the Great Lakes, changes are you've been seeing prices roll back on a near daily basis. Regional issues are much of the reason for the discrepancy and differing trends as problems on one coast don't translate into problems on another coast.
Example: as prices in the Great Lakes have come down as much as 30c/gallon in the last week, prices in California have been heating up. Refining issues have abated in Great Lakes while they seemingly are just starting to pop up along the West Coast.
We've been asked night and day why prices could be $3.25 in South Carolina but $4.29 in Michigan, as was the situation just over a week ago. While there is perhaps more than one good answer, the main culprit is that tightness in supply in one area doesn't necessarily affect supply in another area. This is why an area like South Carolina (and for that matter the rest of the Gulf states) can see such lower prices (hint- no refining or supply issues) while the Great Lakes sees it's own prices soar (hint- major refining problems led to supply issues).
I've been trying to compare it to 2012's apple prices. Due to record spring heat in areas of the country followed by a hard freeze, apple crops were destroyed, leading to much higher apple prices. While the situation eventually improved with 2013's apple crop, prices for items made from apples soared. My beloved apple cider went from $4.99 per gallon to $7.99 per gallon because of the apple shortage. The main difference is that I can live or adjust to less consumption of apple cider. Many Americans may not have that luxury with gasoline, which is why even high prices don't immediately slow demand down, leading to even higher prices.
In many ways, it's simple economics. Issues at refineries in any given region are likely only to affect that specific region, which is why gas prices in the Midwest may skyrocket while the Gulf and its refineries hum along with no issues.
The mixed news is that California is likely to see rising prices in the week ahead, while the Great Lakes and Midwest will likely see continued relief.
The increase in volatility in prices the last decade is real- as refineries have shut because of government regulation, costly pollution requirements, we've become more reliant on fewer refineries. When a refinery goes down today, it's generally larger than it was two decades ago, and with less refineries around, there is more of an impact. And to add a cherry on top of our refinery sundae, EPA and Clean Air Act laws now require various types of gasoline in various areas, complicating and increasing volatility. So while no one likes skyrocketing gas prices, we may have to get used to more volatility as we become more susceptible to problems at the nation's refineries.