Business Forum: The price of gasoline and Canadian oil

February 18, 2012 12:00 am

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The price of gas is spiking again, but the pain is not being shared equally.

Long Island drivers paid an average of $3.82 a gallon last week, highest in the country, according to the Lundberg Survey, which reported a 12-cent increase nationwide since late January. People gassing up in Denver paid $3.01 on average.

Why the difference? Taxes? Nope. New York's gasoline tax is only three cents a gallon higher than Colorado's.

Weather? In both places, gasoline prices are supposed to fall in the winter, not rise.

In fact, the price difference is due in large part to the abundance of Canadian oil. So much now flows into the U.S. that it helps keep gas prices down in a large swath of the country, including Colorado.

This is just one angle to the story of the Keystone XL -- a proposed new pipeline to bring more oil from Canada -- that has gone largely unnoticed, but which affects all Americans.

Since 1993, Canada has more than doubled its oil exports to the U.S. and is now our largest foreign source of petroleum products. So much crude flows south from the oil sands region of Alberta it piles up in Cushing, Okla., where pipelines from the U.S. oil patch also converge.

Historically, oil has flowed to Cushing and to refineries that turn it into something useful, like gas. Therein lies the problem.

While domestic conventional oil production has been flat for years, production from Canada and other unconventional sources, such as the Bakken oil shale of North Dakota, has surged. Lacking pipelines to move this oil out of Cushing to the Gulf Coast and world markets, a glut has developed.

For more than a year, the price of oil at Cushing has been far below -- sometimes by as much as 20 percent -- the price of North Sea oil, an indicator for world oil prices. Which helps explain the difference in prices in Denver and Long Island.

Denver's two refineries get part of their oil directly from Canada, and pay for much of the rest based on the Cushing price. The price of oil on the U.S. East Coast follows the North Sea price, which has been jolted upward by riots in Nigeria and tensions in the Persian Gulf, two traditional sources of U.S. imported oil.

First Published 2012-02-17 23:08:02

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