Midwest gas prices remain volatile

The national average price for regular unleaded gasoline on July 23 was $3.67 per gallon. This price is four cents more than a week ago, 10 cents more than one month ago and 20 cents more than the same day last year. South Dakota’s statewide average sits today at $3.697 a gallon. This is just five cents higher than a week ago, four cents higher than a month ago, and 12 cents higher than a year ago.

While the national price at the pump has now technically fallen for five straight days, it has dropped just fractions of a penny and likely represents a temporary respite rather than the start of a return to lower prices.

Midwestern motorists have faced historically volatile gas prices in recent months. Prices spiked in May and early June because of refinery maintenance, tumbled back to earth at the end of June as refineries resumed production, and have raced higher again in July amid new refinery issues, continued tight supplies and oil prices that are at their highest level in more than a year.

As noted, higher crude oil prices have meant a rising tide for gasoline prices across the country. Entering July, West Texas Intermediate (WTI) crude oil had not settled above the $100 per barrel threshold for more than a year. That streak ended on July 3 and WTI has settled above $100 each trading day since, including a 16-month high of $108.05 per barrel last Friday.

Continued unrest in Egypt has contributed to higher crude oil prices globally, but the increase in WTI (the traditional U.S. benchmark) has dramatically outpaced Brent crude (the traditional European benchmark) in recent months.

Prior to 2011, a difference or “spread” of more than a few dollars between the prices of these two products would have been major news. Beginning in 2011 this spread ballooned as increased crude oil production in the northern U.S. and Canada, combined with insufficient infrastructure to move this product from its delivery point in Cushing, OK, to the coast, and led to a backlog of crude oil in the Midcontinent that was relatively insulated from the global geopolitical issues that sent Brent prices dramatically higher in recent years.

A barrel of Brent was priced as much as $20 above a barrel of WTI as recently as February, but this spread has narrowed to near parity in recent weeks. While a number of factors have contributed to this closing price gap, many point to the increased capacity to bring crude oil from the Midcontinent to the Gulf Coast, most notably the mid-May reversal of the Seaway pipeline, which is now bringing 400,000 barrels per day of crude oil from Cushing to refineries on the Gulf Coast where they can be sold at global prices.

A not-for-profit organization, AAA South Dakota serves its 91,000 members across South Dakota with emergency help on the road, auto travel assistance and a wide range of personal insurance, travel, financial and automotive services through branch offices, and the Internet at AAA.com.

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