Why aren’t gasoline prices in the Buffalo Niagara region falling faster?
While the national average price of a gallon of gas is just a few pennies above $2 and expected to dip below that benchmark in a matter of days, motorists in the Buffalo Niagara region, where gas prices averaged $2.57 a gallon on Friday, are paying the second-highest prices in the lower 48 states, according to gasoline pricing website GasBuddy.com.
Federal energy officials say a big reason for the slower drop in gas prices here is the Buffalo Niagara region’s location at the end of two major pipelines that supply petroleum products to Western New York.
Because it can take nine or 10 days for gasoline to move from refineries in Philadelphia or storage terminals in the New York City Harbor to reach Buffalo, local gas prices can be slower to move when there are big fluctuations in energy prices, according to analysts at the U.S. Energy Information Administration.
“It’s unfortunate that Buffalo is at the end of the system,” said Michael Newman, executive vice president at NOCO Energy Corp., the Town of Tonawanda gas station and convenience store operator. “It puts some constraints on the system.”
The informal federal review, conducted in response to a request from state Attorney General Eric Schneiderman, also noted that it’s not unusual for gasoline prices in the Buffalo Niagara region to change more slowly than they do nationally, especially during volatile times.
“When gasoline prices are increasing, Buffalo gasoline prices tend to increase more slowly,” the EIA analysis said. “When gasoline prices are decreasing, as has recently been the case, Buffalo gasoline prices decrease more slowly, lagging decreases in New York State and national average prices.”
There’s no question that prices locally have not been falling as rapidly as they have across the country.
The average price of a gallon of gasoline in the Buffalo Niagara region is $1.08 less than it was a year ago. Nationally, the average drop is 20 cents bigger – $1.28 per gallon.
While prices in Rochester also have dropped slowly – $1.08 per gallon over the past year – motorists in other markets just a short drive from the Buffalo Niagara region have enjoyed steeper price drops. Prices are down $1.19 per gallon in Erie, Pa., where the average cost of a gallon of gas on Friday was $2.19. In Philadelphia, where gas costs $2.29, prices have fallen by $1.23 over the past year. Prices in Cleveland have dropped by $1.40 over the past year to $1.92 per gallon.
But with crude oil prices hovering between $45 and $50 recently, Newman thinks the Buffalo Niagara region is narrowing the price gap that opened up since the fall. Over the past week, prices locally have dropped by almost 9 cents per gallon, or 3 percent. That’s more than double the nationwide drop of 4 cents per gallon.
A year ago, gas locally cost 36 cents more than the national average. On Friday, the gap was 53 cents per gallon.
“As far as I can see, we’re starting to see prices slide pretty quickly,” Newman said. “I think we’ll catch up by the end of February.”
The reason behind the drop in gasoline prices is the plunge in the cost of crude oil, which accounts for more than half of the price of a gallon of gasoline, according to AAA. A glut of oil caused by increased U.S. shale production, coupled with a refusal by OPEC exporters, led by Saudi Arabia, to cut back their output and stagnant demand, has pushed crude oil prices down by 36 percent since late November. Oil closed at $45.57 per barrel on Friday.
“How quickly crude oil price changes are passed through to the pump depends on a number of factors,” the EIA analysis said.
Those factors include how long it takes for crude oil to be refined into gasoline and then moved into storage in the local market; how far the fuel travels from its storage site to the gas station; the structure of the local gasoline market; and whether crude oil prices are rising or falling, the analysis said.
Decades ago, when both Mobil Corp. and Ashland operated refineries in the region, gas stations in the Buffalo Niagara region could rely on gasoline produced there for most of their supplies, Newman said. But in the years since both of those refineries closed, much of the region’s gasoline comes through the two pipelines, which originally were built to be secondary sources of supply to the Buffalo market. One of the pipelines, the Products Pipeline, narrows from a 10-inch diameter pipeline once it reaches Rochester to a six-inch line heading into Buffalo, Newman noted.
“When gasoline prices rise or fall quickly and consistently over a period of time, as has been the case recently, the lagged change in price can cause significant differences between gasoline prices in Buffalo and elsewhere in New York,” the analysis said. “During periods of stable prices, Buffalo gasoline prices typically do not vary more than a few cents from the New York State average gasoline price.”
On Friday, however, there are significant differences in gasoline prices. While gas averaged $2.57 a gallon in Buffalo, it was $2.28 in Syracuse and $2.44 in Albany.
The price differences were even greater in other parts of the country, where prices were below $2 a gallon at three of every five gas stations nationwide, according to AAA, which predicts that the average price could drop below $2. Stations on Native American reservations in Irving have been selling gas for less than $2 a gallon for more than a month.
Gas prices have dropped for 120 consecutive days. Nationally, prices are at their lowest level since March 2009. Locally, prices are at their lowest since May 2009.
State and local taxes, which average about 45 cents a gallon, also are a factor in the Buffalo Niagara region’s higher gas prices, Newman said. New York’s gas taxes are the fourth-highest in the nation, equal to about 17 percent of the price of a gallon of gas, according to a study released this week by financial news website 24/7 Wall Street.