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COVID-19 fuels reduction in gas and oil prices

(Velvet Spicer)
(Velvet Spicer)

Despite a steady drop in gasoline prices in the last few weeks, one thing remains constant: drivers in New York State will continue to pay more at the pump than many of their counterparts nationwide.

It’s a combination of gas taxes—which, at nearly 64 cents per gallon, ranks the state among the highest nationwide—and the lack of a refinery here.

“There’s no refinery in the state and we’re at the so-called end of the pipeline, so we’re usually slower to see the lower prices,” said Elizabeth Carey, director of public relations & corporate communications for AAA Western and Central New York. “Prices here have been dropping, just not as drastically as some other places across the country.”

In fact, the average price for a gallon of gas statewide this week was $2.29, according to AAA. Last week it was $2.33 and a month ago it was $2.57. Last year at this time, a gallon of gas would have cost $2.76 in New York State.

In Rochester, the average price of gas was $2.27 per gallon this week and $2.32 a week ago. A year ago, a gallon of gas in Rochester cost $2.75, AAA reported.

That compares with the national current average of $1.92 per gallon, which is down from $2.40 a month ago and $2.74 a year ago.

(Velvet Spicer)
(Velvet Spicer)

Similarly, GasBuddy this week reported the average price for a gallon of gas in Rochester as $2.24, roughly 26 cents lower than a month ago and 51 cents lower than a year ago. Buffalo’s gas prices also stand at $2.24 per gallon, while Syracuse drivers are paying on average $2.14 per gallon.

“The national average continues to fall as every state has seen yet another decline in average gas prices over the last week as overall oil demand remains constrained due to COVID-19,” said Patrick DeHaan, GasBuddy’s head of petroleum analysis. “The decline has been most significant thus far in the Great Lakes due to the region being landlocked and challenging to ship gasoline out of. Prices have been depressed significantly, driving these states to some of the lowest prices in the country.”

The U.S. has an unusually high amount of the cheaper winter-blend gasoline still available, which prompted the Environmental Protection Agency to extend the sale of the winter-blend gas past the May 1 deadline to May 20 this year.

“The EPA’s extension of the winter-blend gasoline waiver will contribute to sustained lower prices, especially as U.S. gasoline demand readings look more like winter driving season than spring,” Carey said.

The EPA also plans to give small refineries more time to meet the U.S. biofuel mandate.

“By waiving the low volatility and blending limitations through May 20, EPA will ensure a steady supply of gasoline,” the agency said in a statement. “EPA will continue to monitor the adequacy of gasoline supplies and, should conditions warrant, may modify or extend this waiver at a later date.”

Typically in April, drivers begin to brace themselves for the summer increase in gas prices, but in addition to the availability of winter-blend gas, prices have been on the downswing due to the recent plunge in demand for oil and gasoline attributed to the COVID-19 pandemic.

“It started with China. They’re the biggest user of oil out there,” Carey explained. “The factories shut down there and that really sent the demand down and prices started to come down.”

Now that the virus has become a global pandemic and people are social distancing and working from home, demand for gas has declined.

Map of state and local tax rates on gas from the Institute on Taxation and Economic Policy
Map of state and local tax rates on gas from the Institute on Taxation and Economic Policy

A report from Oil Price Information Service (OPIS) by IHS Markit for the week ended March 14 shows that same-store gasoline sales at U.S. gas stations were down 2.4 percent nationwide, when compared to the same week last year.

According to the latest OPIS demand data for the week ending March 28, same-store sales were down 46.6 percent nationwide, and that is not expected to improve anytime soon.

“At a time when rapidly decreasing oil prices would theoretically lead to an increase of consumer demand for gasoline, much of the country is shutting down economic activity due to the COVID-19 outbreak,” said Tom Kloza, global head of energy analysis at OPIS. “We are likely to see weekly gasoline demand numbers drop to levels last witnessed in the Nixon Administration, and we’ll see those lower levels in April.”

The Northeast region, where New York State has restricted non-essential businesses to work from home where possible and set guidelines for social distancing, saw year-on-year fuel demand decline 3.7 percent during the week ended March 14, OPIS officials said. Conversations with retailers in some of the impacted states suggested year-on-year volume losses of 20 percent to 40 percent, OPIS reported.

“At the same time, there’s an oil price war between Russia and Saudi Arabia, so that’s been pushing oil prices down,” Carey noted. “When oil prices come down that directly impacts the prices that we pay at the pump.”

In February, the International Energy Agency said that oil demand growth would fall to its lowest rate since 2011, with growth falling by 325,000 barrels per day to 825,000 barrels per day, and a contraction in consumption by 435,000 barrels per day. At an OPEC summit in early March, Saudi Arabia agreed to reduce production by 1.5 million barrels per day and called on Russia and others to also reduce oil production.

Russia declined and Saudi Arabia launched an oil price war with the country, although neither country admits to doing so. U.S. oil prices have fallen 34 percent and the price cuts are believed to have triggered the stock market crash currently being experienced around the globe.

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