Gas Price to Take a Dive

Due to intervention from Uncle Sam, the price of gas will drop over the month of July.

In an unprecedented move, the U.S. government and 27 allies abroad announced that they would release millions of barrels from strategic oil reserves with the aim of reining in gas prices. As a result, Burnsville consumers will see a drop in price — 10 to 20 cents per gallon over the next few weeks, an industry analyst said.

 At present, gas prices in Burnsville range from $3.43 to $3.45 for a gallon of unleaded gasoline. According to an index of Twin Cities gas prices from the last 12 months, gas was just $2.73 per gallon in June 2010.  After hitting a low of  $2.59 in August 2010, prices increased steadily until March of 2011, when the market abruptly turned. In less than two weeks, prices jumped from an average of $3.15 in late February to $3.57 in early March.

 The rapid increases continued for the next two months, reaching a peak in early May, when the average price for a gallon of unleaded hit almost $4.00 a gallon. Since then, the price of gas has edged back down.

 Patrick DeHaan, an energy analyst for Twin Cities-based gasbuddy.com, said such seasonal increases are a typical part of the production cycle, when refineries switch from winter to summer gas mixes.

 “Whenever they switch over there are kinks and problems that halt gas production,” DeHaan said. “The inventory drops as a result and investors begin to worry that it will get too low, so they buy. It’s the same every year.”

 The price begins to decline when refineries are up and running smoothly again. However, this time around seasonal fluctuations were exacerbated by general economic pressure and unrest in North Africa and the Middle East, DeHaan said.  Political turmoil abroad had an outsize influence on the market: Most of the gas used in the United States is imported from Canada or produced at home.

 At the time, the Obama Administration announced its intention to investigate whether the price increases were the product of illegal market manipulation, rather than a necessary consequence of supply and demand.  Thursday, the administration chose another course: To release 30 million barrels of oil from the Strategic Petroleum Reserve, previously used only in times of war and or a natural disaster. According to an industry magazine, Hydrocarbon Processing, the reserves have only been opened on a handful of occasions: At the dawn of the Gulf War in 1991 and during the summer of 2005, when Hurricanes Rita and Katrina severely disrupted oil production in the Gulf of Mexico.

Thursday, Washington brass explained that the release was meant to mitigate price increases brought on by the ongoing conflict in Libya and help consumers weather through economic hardship. 

"We are taking this action in response to the ongoing loss of crude oil due to supply disruptions in Libya and other countries and their impact on the global economic recovery," Energy Secretary Steven Chu said in a press release from the U.S. Department of Energy. "As we move forward, we will continue to monitor the situation and stand ready to take additional steps if necessary."

 DeHaan said in decades past, officials in Washington D.C. have threatened to take such measures before, but have never gone the distance.

 “I think the industry is surprised that they followed through. The government used to just bully the industry so they got used to them crying wolf,” DeHaan said.

 DeHaan said that this may create a fundamental change in a notoriously volatile market: Speculators may be discouraged from investing heavily because the government could flood the market with cheap gas and keep prices low. In effect, the release of oil reserves could create a price ceiling, which will keep prices within a predictable range. DeHaan added that global consumption has increased, particularly in China, which will ultimately keep prices from falling below a certain threshold.

For current gas prices, check out the , available each weekday at 6 a.m.


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