Savannahians drive around on Putin-free gas. The Russian president's invasion of Ukraine is still costing us at the pump.
Local prices soared past $4.25 a gallon for regular unleaded on Tuesday, as U.S. President Joe Biden announced a ban on gasoline produced in Russia. Meanwhile, Savannah wholesalers and retailers told the public the move wouldn't lead to supply disruptions, as Russian gas is not part of the local inventory chain.
So if supply isn’t an issue, why are pump prices climbing this week in Savannah faster than the spring pollen count? Because gasoline is a global market, with prices tied not to what retailers paid for what’s in their tanks today, but the cost of the gas destined for those tanks down the road.
And nothing bids up the oil market like war and an embargo against a major oil producer.
Credit: Seth Wenig, AP
Credit: Seth Wenig, AP
Russia’s place in the world oil market
Oil and energy production is the bedrock of Russia’s economy, which is why a U.S. ban of Russian imports is being employed as an economic sanction against Putin for making war on Ukraine.
Russia produced 11% of the world's oil in 2020, and the United States consumes 20% of the world's supply. Meanwhile, the amount of oil produced worldwide on a daily basis, about 100 million barrels, matches the amount consumed.
Removing Russian oil from the inventory means that other producers must make more to keep an equilibrium to stabilize prices.
Credit: Hasan Jamali, AP
Credit: Hasan Jamali, AP
Filling the gap
The U.S. is the world’s oil producer, and estimates are domestic suppliers could increase production by 1 million barrels a day.
Ramping up operations beyond that would be expensive and time consuming, however, as many domestic wells were shutdown during the COVID-19 pandemic due to a lack of demand. Some 260 domestic oil companies went bankrupt.
Beyond our borders, other oil-rich countries, most notably those in the Middle East, have spare production capacity but have little incentive to do so, as higher prices mean higher profits.
Credit: Savannah Morning News
Credit: Savannah Morning News
According to the U.S. Energy Information Administration, approximately 56% of pump prices are rooted in the cost of a barrel of oil. Hence, when the supply from a major oil producer is threatened - such as Russia - costs go up everywhere, not just in locales where Russian oil or gasoline is a direct part of the supply chain.
Trickling down to motorists
Most Savannah retailers source their gasoline supply from pipelines that stretch from Texas to New York or from ocean-born tankers. Colonial Oil, the parent company of Enmarket, has a marine terminal here in Savannah. Other retailers truck gasoline into the market.
For operators, be they convenience stores, supermarkets or “big box” stores such as Walmart, gasoline is a carrot to attract customers into the business to buy other products, be it a cup of coffee, a cartful of groceries or a TV and a new set of tires.
Credit: Richard Burkhart/Savannah Morning News
Credit: Richard Burkhart/Savannah Morning News
Since pump costs are advertised on street signs and can be adjusted at the touch of a button, pricing is highly competitive as retailers seek to steal market share from their neighbors. Gas is typically sold for close to cost and even below cost in some instances. Operators seek to make up losses in areas where pricing is not so competitive, which is why pump prices can vary widely from one part of town to the other, depending on the number of competing fueling stations.
This reality is why many retailers take umbrage with the notion that skyrocketing prices constitute price gouging on their parts. Such is the nature of being on the frontlines, as consumers can't vent their anger at Putin or the oil market speculators but can at the local gas station operators.
This article originally appeared on Savannah Morning News: Savannah’s gasoline supply is not connected to Russia. Why are prices over $4 a gallon?
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