Transportation Bottlenecks Skewing U.S. Gas Prices, Executive Says

As consumers are all too aware, gasoline prices have been climbing over the last month. At the same time, prices are uncharacteristically high in some states and low in others.

What's going on?

In an interview with business cable news channel CNBC today, Joe Petrowski, CEO of Gulf Oil said some of the price differential is caused by where the oil comes from.

“One of the things that's unusual today in the gasoline and diesel markets, is we have higher prices in the northeast than in California,” Petrowski said. “We haven't seen that for a couple of years, and I think that's part of the story.

The difference is between the price of oil produced in North America and Brent crude, much of which comes from the Middle East. Brent crude oil prices rose sharply over the winter because of political turmoil in the Middle East. The loss of Libyan exports, most of which was Brent, has kept prices high.

Cheap, plentiful oil

In the U.S., WTI crude, produced in the Southwest, has been plentiful and, therefore, cheaper. But what has changed in recent months that many states are getting gasoline refined from Brent while others are getting gas refined from cheaper, U.S. oil.

“Most of the crude that's being sourced for the Gulf Coast and the Northeast is coming off the world markets, where we have ample supplies in WTI, Canadian and Mid-continent crude,” Petrowski said. “So prices are hugely different between Ohio, Illinois and the northeast , and partially its because we have a bottleneck situation with WTI at Cushing.”

Cushing, Oklahoma is a major oil depot where oil is shipped out to refiners, and that bottleneck may be one reason that not all parts of the U.S. can benefit from cheaper U.S. oil. The refiners that serve those states can't get the oil, so much import the more expensive stuff.

As a result, some of the cheapest gas in the country is found in the states of the Mountain west – Arizona, Colorado, Wyoming, Utah, New Mexico and Nevada. California, which traditionally has the third-highest gas in the nation, after Hawaii and Alaska, is much cheaper than Illinois, New York and Connecticut.

Higher prices on the Gulf Coast

Gulf Coast consumers, who had traditionally paid among the lowest gas prices in the country because of low taxes at the pump, are now paying more for gas because their fuel comes from more expensive Brent. It's not, says Patrowski, because gas station operators have suddenly decided to jack up their prices to rake in more profits.

“Our retail margins are the smallest they've been this year,” he said.

Meanwhile, oil storage facilities are being expanded in Oklahoma to handle the overflowing supply of U.S. crude, which should only increase in the years ahead. Despite a drop in U.S. offshore drilling, production is increasing in land-based oil fields in Texas, Montana and South Dakota.

But unless fundamental problems are addressed, says Petrowski, consumers in some states could continue to pay significantly more for gas than consumers in others, if the current differential between Brent and North American oil persists.