Why have gas prices dipped so much since all-time high in June?

Just like when they skyrocketed six months ago, the answer has much to do with the war in Ukraine, experts say
Published: Nov. 28, 2022 at 8:33 PM CST
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SIOUX FALLS, S.D. (Dakota News Now) - Five bucks per gallon.

That was the staggering, all-time-high national average price for a gallon of gas back in Mid-June.

But almost six months later, it is $1.50 less, with Monday’s average sitting at $3.51, according to Gas Buddy.

That was about the rate at places in or near downtown Sioux Falls on Monday. About 20 minutes away, at Vollan Oil on a highway near Baltic, a gallon of unleaded gas with 10 percent ethanol was set at $2.89 — the lowest mark since January.

Yep, customers have noticed.

”I thought, ‘My, God, why didn’t they do this a couple months ago,” said Jeff Nelson of Dell Rapids, a long-time Vollan Oil Customer. “You have more money in your pocket and it allows you to buy more groceries.”

So, why the price dip?

”It’s such a deep topic, that there’s a million things that can weigh into what your gallon of gas is going to cost at the end of the day,” said Vollan Oil owner Bruce Vollan.

For starters, prices are almost always lower this time of the year compared to the summer, when the weather is colder and fewer people hit the road and need gas.

That keeps the supply for gas up and the demand down, especially in less-populated plains states like South Dakota, Iowa, and Minnesota, where state averages are 15 to 25 percent less than the national average.

But according to the head petroleum analyst at Gas Buddy, the war in Ukraine has been the biggest factor in the dramatic price plunge since Mid-June.

”That caused prices to skyrocket based to $135 a barrel for oil, on the fear that Russian oil would be cut off from the global market,” Patrick De Haan said. “A lot of countries have cut off that Russian oil, but major oil-consuming nations like China and Russia have bought more Russian oil as a result, and so that Russian oil is still making it into the market, and that ‘s why, from a peak back in late spring, gas prices have fallen.”

Some politicians, nationally and around the region, have blamed President Joe Biden for higher gas prices because of his administration’s crackdown on fossil fuels.

“That couldn’t be more incorrect,” De Haan said, adding that the byproduct of those policies will not be seen for a few years because “it takes a long time for policy to impact investment, to impact oil production, to impact that oil getting to the gas pump.”

De Haan said Biden should also not be credited for any decrease in prices, as well.

”The president may be the president of the U.S., but he’s not the president of countries overseas,” De Haan said. “He does not control global supply and demand.”

De Haan did, however, mention the “surprising” recent move of the Biden Administration’s approval for oil giant Chevron to produce and export oil from Venezuela following the South American country’s decision to restart talks with opposition groups.

According to Politico, the move could add supply to the global oil market, which may ease fuel prices and speed the declines in U.S. gasoline prices that have been a political burden for President Joe Biden since Russia invaded Ukraine in February. However, a senior administration official said the easing of sanctions was not driven by the oil market pressures and was instead a response the Venezuelan regime’s decision this week to participate in the negotiations with opposition groups.

Another notion both politicians and pundits have offered is the influence of major oil companies like Shell, Chevron, and MobileExxon, who have recently broken profit records. But since only one percent of service stations in the U.S. are owned by companies that also produce oil, U.S. oil producers are in no position to control retail gasoline prices.

“Oil companies don’t set prices,” De Haan said. “Back during COVID, these companies were losing tens of billions of dollars. If it was up to oil companies, they’d have stable prices year-round, because that’s better for business (when) it’s not going from massive losses to massive gains.”

And that is exactly the way the market has fluctuated so dramatically — with a more than a few wild swings — ever since the Covid-19 pandemic struck in March 2021.

“Of course, covid shut down refineries, it shut down oil production, especially in your neighbor, North Dakota, when oil prices plummeted to $20 to $30 a barrel during the early days of covid,” De Haan said. “The oil companies and industry started to contract, they started to go broke.”

That is why oil production has rebounded from covid lows, De Haan said, but that production is still not back to what it was before the pandemic, which is why gas prices are still higher than they were pre-covid.

The dramatic shifts in prices over the last two-plus years have been unprecedented, said Vollan, the small-town gas station owner.

“You are completely at the mercy of the market,” Vollan said. “It’s noon right now, and the market has had a big swing today, and we don’t get excited about that anymore. So, that is part of the problem. The powers-that-be that move this market up and down, all the trades that get put on everyday, can wildly swing the market. It’s nothing to see a 20 to 30 cent swing in a day, which — you would never see that. Now, that’s kind of become the norm. So, that will hyper-inflate the market.”

And who are some of those powers-that-be?

“There’s a lot of factors,” Vollan said. “Most of this is geo-political. I mean, the Crown Prince (of Saudi Arabia) could get up today and say ‘I’m not going to get along with OPEC. I’m going to do my own thing,’ and there goes the market.”

OPEC is The Organization of the Petroleum Exporting Countries, a cartel of 13 countries which account for an estimated 44 percent of global oil production and 81.5 percent of the world’s proven oil reserves. This gives OPEC a major influence on global oil prices.

Both Vollan and De Haan referenced the latest covid outbreak in China, and the covid lockdowns some Chinese citizens are protesting. This, De Haan said, has reduced the global demand for oil.

Most of these global events determine the price that local gas station owners and managers set every day.

But owners like Vollan — whose company is not attached to a major oil company, unlike most gas stations — still have the final say in the numbers that they flash on their signs.

On Monday, Vollan set the price of a gallon of unleaded gas with 10 percent ethanol at $2.89 — about 50-60 cents lower than most in the heart of Sioux Falls. He said he does not base his price on what other stations are charging.

”I price our product as I see fit for profitability of our company,” Vollan said. “We’re just a cost company. We buy a commodity. We sell it. We like to make money. We’re doing quite well, honestly.

“If you give the consumer a good product at a decent price, you can make some money.”

So, how long will this trend of lower prices continue? Vollan said you’re guess is as good as his, or anyone else in the industry.

The Russian war in Ukraine has brought up a higher level of volatility and unpredictability, De Haan noted.

“There’s just a lot of factors swirling in the air right now,” De Haan said, “because there’s so much abnormal activity or events happening.”