August 16th, 2005

Brad @ Burning Man

Local Gas Price Trends and Rumors

At several parties I was at over the weekend, a rumor was going around that gas prices would be over $3.00 per gallon here in St. Louis by the end of the weekend; in fact, the Friday night version of the rumor was that it would be above $3 by Saturday morning. And, in fact, gas prices did jump, but not by that much: in a matter of hours Friday night, the stations with the cheaper gas prices jumped from $2.38 to $2.55. What I told everybody at the time, and especially on Saturday after I'd had more time to research the subject, was to buy gas only in dribs and drabs until at least Tuesday. (And here it is Tuesday, and the cheap stations are already back down to around $2.46.) If my power had been up, I would have put the same advice up here. I had two reasons to think this.

First, look at the two graphs below, both captured this afternoon from StLouisGasPrices.com, an absolutely indispensable and very cool resource that's probably also available in your area (if you're in the USA or Canada) from GasBuddy.com. On each of them, the red line is the St. Louis local average, and the blue line is the nationwide average. The first graph is over the last month, the second one is over the last year. The same pattern holds up over the 3 year pattern, and has for as long as I've been watching it, but at the 3 year resolution it didn't scale well to something that would fit in LiveJournal without screwing up people's friends lists. Anyway, on to the graphs:




The absolutely consistent pattern is that St. Louis almost always has gas prices that are below the national average. There are several really good reasons for this. St. Louis has an overall lower cost of living, with correspondingly lower salaries, and that acts as a brake on what consumers are able to pay here. The St. Louis gas market is hyper-competitive. More importantly, for geographic reasons the St. Louis area is a hub for buried gasoline pipelines, which keeps the market open to more competitors than most markets get. And most importantly, there are huge refineries right here in the metro area, where they're toxifying the whole northern half of the east side, so transportation costs to get the gas to local stations are lower. St. Louis gas prices only spike above the national average when one or more of those things changes. Those changes seldom last for longer than a couple of days. So if you see average St. Louis gas prices on the StLouisGasPrices.com graphs go above the national average, hold off for a couple of days, because they always drop within a couple of days.

The other thing I knew was that I knew what had changed. I knew from my obsessive following of the news that the main reason that whole country's gas prices were spiking so fast was that an unusually large number of refineries were down for emergency maintenance. This keeps happening, because some quirks of environmental law that I'll explain if anybody cares make it almost impossible to build a new refinery in the United States. Instead, oil companies have been squeezing more and more productivity out of the refineries they have. For several years now, American refineries have been running above 99% of their theoretical capacity, which leaves no margin for maintenance problems. Earlier in the week, it was reported that three large refineries were down at once, and so nationwide prices were spiking. Then on Thursday night, I found out on the local news that the first wave of thunderstorms dropped a tree on the power lines feeding the Shell refinery complex in South Roxana, Illinois, one of the biggest ones here in the metro area. At the time, Ameren/UE predicted that power would be back up to them by the end of the weekend.

I don't have enough foresight to think of these things in advance and remember that that meant that local gas prices were going to spike, but at least when they did I remembered why the were, so I knew when it would start back down. By the way, I think I know where the $3.00 rumor came from, too. I didn't bookmark it and can't find the article right this minute, but the New York Times reported (Friday morning, I think it was) that industry analysts are predicting that US average gas prices will be above $3.00 by the end of the year (not the weekend) and will spend all of next year in the $3.00 to $4.00 per gallon range. One analyst reminded the reporter that Europe and Japan have been paying that much or more for years, and that Americans will simply have to get used to it.