By Heather Richards
Via Wyoming News Exchange
CASPER — Wyomingites stopping to fill up their trucks with gas or diesel these days face a predicament that’s not common for the Cowboy State: It’d be cheaper down in Denver.
The fall in crude prices of late should be a boon for people at the pump, whether for a business that reserves part of its budget for transport and trucking or a family traveling for the holidays. But in Wyoming, despite the plethora of oil wells and the refineries on the edge of Newcastle or Casper, gas prices haven’t come down as fast as they have in other parts of the country, even just across the border in Colorado.
Why is that?
If you stop at the Conoco gas station where Interstate 25 passes over Center Street in north Casper, a gallon of regular gas will cost you about $2.80. The Rocky Mountain region’s average stood at about $2.65 last week, compared to $2.20 in the Midwest or $2.07 down by the Gulf Coast.
Most of what customers are paying for at gas stations across the country comes down to crude prices. According to the EnergyInformation Administration — a federal agency that tracks energy data — crude prices make up about 50 percent of the price at the pump.
When crude prices rise, as they did through 2017 and 2018, the price for customers of gas stations rises rapidly. But when crude becomes cheaper, as it has since October, that discount doesn’t necessarily hit the retail level right away, said Rob Godby, director of the University of Wyoming Center for Energy Economics and Public Policy.
It’s the rocket and feather phenomenon, well-documented in gasoline markets, he said. The prices shoot up like a rocket and drift down like a feather.
“You’ve got to pass on costs immediately, they’re going to be reflected at the wholesale level,” he said of when crude prices rise. “When it comes down, you don’t have to. You can make a fatter profit.”
But it’s not just crude prices driving gasoline. One of the reasons that gas prices tend to be lower in the southeastern U.S. is the host of refineries situated along the Gulf Coast. It’s simple proximity to the operations that take crude and refine it into petroleum products like gasoline and diesel.
Wyoming has its own refineries.
Sinclair Oil runs two refineries in Wyoming, one on the North Platte River just east of Casper and one outside of Sinclair in southern Wyoming. The refinery in Sinclair has been there since 1924 and runs on a mix of sweet and sour crude oil from both the U.S. and Canada. But because Wyoming is such a small-demand market, post-refining products from Sinclair’s refineries serve a number of other areas, from Salt Lake City down to Las Vegas, said Clint Ensign, senior vice president of government relations for Sinclair.
Meanwhile, the Sinclair gas stations across Wyoming aren’t run by the refining company and may not be pumping Sinclair gasoline.
“They will have a licensing agreement, but we don’t set price at the pump,” Ensign said. “Most of their product will come from Sinclair, but they also have the right to buy product from somebody else.”
However, a partially hidden cost of gasoline is refining costs. A refinery unit down for repair, disruption in the supply of crude that is needed at a particular refinery, weather and seasonal changes can all affect those costs that are carried down to the customer.
But refineries aren’t open about some of those issues.
“No company really signals to others what their operational issues are,” said Ensign. “It would be inappropriate for us to even say to you, ‘Well, we think prices are going up or prices are going down’ because that would be a signal to the market.”
Wholesale gasoline prices are still higher in the Casper area than in other parts of the Rockies, like Denver, right now, Ensign observed. But in Idaho, Utah and Nevada, wholesale prices appear to be higher, he said.
“I’m not seeing Casper as the highest prices in this Rocky Mountain region,” he said.
Of course, after the price of crude and the costs at the refining and distribution level, there are taxes.
State and federal gas taxes account for about 19 percent of a gallon of gasoline.
Wyoming has a gas tax that was increased in 2013 by from 14 cents to 24 cents to fund road construction and maintenance. It was the first tax hike to clear the Legislature since 1998. Wyomingites were partially shielded from feeling that increase at the pump — and expressing their displeasure about it — because crude prices fell and blurred the costs.
That tax increase has changed historic prices relative to neighboring states, bumping Wyoming’s population centers like Casper and Cheyenne higher than they once were. But that’s a long-term observation that moved Wyoming closer to pump prices in the Front Range, said Godby, the UW economist. It’s not what we’re experiencing short term with higher prices in Wyoming than elsewhere, he said.
“Our gas tax is not extremely high compared to anybody else,” he said.
Some gas stations in Wyoming are starting to lower prices in light of the declining price of crude. The Shell Station in Rawlins is now selling gas for $2.56 a gallon. That’s down from $2.80 a gallon, a price common around Wyoming. Last month at this time, the station was selling at $3.08 a gallon.
Retail owners in the state, often small business owners with one or more stations in a town, say they look at how much the gas being trucked in from Cheyenne or Casper is costing them and how many cents on the dollar they want to make, in order to set the price. They note that wholesale prices are falling significantly.
Godby said the competition among gas stations, particularly in rural Wyoming, can significantly affect prices.
Hubs like Casper or Laramie have greater competition in their markets than a gas station in Thermopolis, he said. Where there’s competition, there can be lower prices.
Businesses have to choose whether to make a higher price for every gallon or drop the price and draw in more customers, Godby said.
“When you are in a small market, nobody really wants to lower their price,” he said. “In a larger market, someone will just say ‘We’re going after the customers.’”
What’s happening right now is hard to pin down. Gasoline markets are dynamic and sophisticated. But it may just be competition, Godby said.
“Let’s face it, we’re in an offseason,” he said. “It’s possible we’ve just gotten into a less competitive phase in the Wyoming market, where retailers, or maybe the wholesalers, are (less) willing to compete against one another. And they can kind of get away with that.”