Janesville29.3°

Pipeline rupture lifting gas prices

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staff, Gazette
August 3, 2012

— Yes, the oil spill up north has something to do with the price you're paying to gas up your car.

No, the pipeline rupture is not the only reason, and prices will fall in a week or two. Or three, or four.

That's the word from experts who follow the petroleum market. One analyst predicted that election-year politics will come into play. More on that later.

A gallon of regular gas ranged between $3.59 and $3.80 in Rock County on Friday, according to AAA. Many stations were charging around 30 cents less just a week ago.

It's the familiar game of supply and demand, said Paul Simon of Janesville, whose Rollette Oil distributes gas and diesel and runs two convenience stores.

Supply is down because the crude-oil pipeline that burst a week ago, spraying more than 50,000 gallons across five acres in Adams County, supplies a refinery in Indiana, Simon said.

That refinery and others in the Chicago area supply gasoline and diesel to the Midwest, industry analysts said.

Those refineries also have experienced breakdowns and fires—nothing major—recently, said Tom Kloza, chief analyst with Oil Price Information Service.

With supply down, prices have risen, Kloza said, and refineries that are still producing are reaping the profits.

"But that is the way the market works," Kloza said.

Simon gets his product through pipeline terminals in Madison and Rockford, Ill., for the most part, but now he's looking at Dubuque, Iowa, and farther afield to keep up with demand.

When demand went up in the Madison market, prices went up, Simon said.

"Call it greed, or whatever you want to call it," Simon said.

Gas prices are up in most of the country after a rise on the international oil market, but the Midwest is being hit particularly hard, said Pam Moen of AAA Wisconsin.

Moen said four events have led to the Midwest markup. One is the Adams County oil pipeline spill. Then there's the pipeline that spilled more than 54,000 gallons of gasoline and contaminated groundwater in Washington County on July 17. That pipeline supplies gas to the Green Bay area.

Add to those problems the fact that two refineries—in Illinois and Indiana, which are major suppliers to the Midwest—had problems that limited production, Moen said.

These are temporary, normal problems, Moen said, but they all happened at the same time.

"It's not like there's a supply shortage or anybody should be concerned about not having an adequate supply, but when supplies are limited, gas has to be brought in from other places, and that has the effect of increasing those wholesale and retail prices," Moen said.

Simon, however, is beginning to get worried about supplies. He has heard of terminals in Madison limiting what they'll sell.

Moen says fuel from elsewhere will eventually arrive to fill the gaps.

Kloza agreed with Moen's analysis.

"You're in that kind of horror zone right now," Kloza said of the Great Lakes states.

"But this is not the makings of a gas shortage," Kloza said. "This is the makings of a fever, so to speak. This fever will break," as fuel is shipped in.

Wholesale prices for reformulated-blend gas in the Chicago market have risen by 81 cents, from $2.63 a gallon June 28 to $3.44 on Wednesday, Kloza said.

Add to that the state and federal taxes and the fees that credit card companies charge retailers, and gas stations are making pennies per gallon, Kloza said.

Kloza expects the usual seasonal influences to take hold as the summer driving season comes to an end. Gas prices typically fall in the fall.

"We've seen this movie before. It's kind of a sequel. We know how it ends. I guess we don't know when the climax is. I would guess it'll be in August," Kloza said.

Simon said the supply shortage could be eased if federal environmental regulators would let the pipeline company resume pumping its North Dakota crude through Wisconsin.

The government has ordered the line shut down until environmental concerns are satisfied.

Simon said the government ought to allow the building of more pipelines, but some say a lack of refineries adds to periodic supply problems.

While small refineries have been built in recent decades, the last "significant" U.S. refinery began operating in 1977, according to the U.S. Energy Information Administration.

Much might come down to politics.

Noting Wisconsin is a presidential battleground state, Kloza said with the major parties' nominating conventions coming up, the government could take action on gas prices.

"We're getting prepped for it here because we know there will be a lot of nonsense from both sides," Kloza said.

Kloza, a New York Giants fan, predicted pump prices would plummet as professional footballs start flying.

Kloza gloated—briefly—about the Giants' playoff victory that ended the Green Bay Packers' season last year. He also predicted Aaron Rodgers and the Pack will have another big year.

Wisconsinites will be relieved if both his predictions come true.



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