Crude oil from N.D., Canada eases gas price rise in mid-continent
MINNEAPOLIS As gasoline prices soar on the coasts, less expensive crude oil from Canada and North Dakota is easing the pain for Minnesotans. The average pump price in the state, running this week around $3.60 per gallon for regular, remains 75 ce...
As gasoline prices soar on the coasts, less expensive crude oil from Canada and North Dakota is easing the pain for Minnesotans.
The average pump price in the state, running this week around $3.60 per gallon for regular, remains 75 cents behind California, where gas has been over $4 for weeks. It's the biggest price gap between the two states since 2009, according to data from AAA.
It also underscores a long-standing disparity in oil supplies and pump prices in different parts of the nation. Prices on both East and West Coasts are near or above $4, while drivers in the Midwest and Rocky Mountain states pay considerably less.
"That Minnesota-California spread is horrendous, so be thankful you live in the frozen North," said James Williams of WTRG Economics, who noted that higher gas taxes in California -- 8 cents more than in Minnesota -- are only part of the story.
Gasoline prices typically rise in the spring, as refiners switch to more expensive summer blends, but this year that trend has begun earlier as world crude prices have risen amid tensions with Iran. Minnesota pump prices are up about 38 cents so far this year.
Oil experts say Minnesota and other Midwestern states benefit from lower-priced crude from Canada and the Bakken region in North Dakota.
Both of Minnesota's refineries, Flint Hills Resources in Rosemount and Northern Tier Energy in St. Paul Park, get most of their oil from those regions via pipelines.
"We are geographically blessed in Minnesota to have access to reliable and abundant supplies of crude oil," said Jake Reint of Flint Hills, whose 320,000-barrel-per-day refinery has the capacity to supply about half the state's gasoline needs.
As gas prices creep toward the $4 level, economists worry that it will slow consumer spending, a major component of the U.S. economy. It not only hits pocketbooks directly, but it reduces driving, including trips to stores.
"If you are out in California, paying $4 per gallon, that starts to matter," Williams said.
Too much in the middle
The flow of oil from the north is swamping a giant terminal at Cushing, Okla., where the benchmark is set for West Texas crude. The price there has been as much as $30 less per barrel than crude reaching the East and West Coasts, experts say.
That has led to higher profit margins for mid-continent refiners, including CHS, the Inver Grove Heights farmer cooperative, whose two oil refineries in Montana and Kansas more than doubled their earnings last year.
To a lesser degree, the crude price break has trickled down to consumers in the Midwest.
"Much of that price disparity that we're seeing is due to the lower price for crude products in the center of the country," said Avery Ash, manager of regulatory affairs for AAA.
In Minnesota, at least one refiner gets even lower prices than the benchmark price at Cushing. Over the past five years, the St. Paul Park refinery has purchased crude for about $2 less per barrel, according to a recent regulatory filing. That crude, often a heavier type from Canada, can be more costly to refine, however.
Some oil analysts expect the mid-continent price break to continue, even as one pipeline is reversed to flow south to Gulf Coast refiners, relieving some of the oversupply.
At the same time, world crude prices are on the rise, partly because of oil market speculation over what will happen with the Iran nuclear standoff. In Minnesota, today's prices are roughly 40 cents below the peak last year, which came in May.
Elsewhere in the country, closures of key refineries, including two in the Philadelphia area, also are driving up regional prices, experts said.
"By and large, retail prices in Minnesota will probably be toward the lower end of U.S. states for the foreseeable future," said Tom Kloza, chief oil analyst for the Oil Price Information Service, which collects pump-price data for AAA.
Distributed by McClatchy-Tribune Information Services.