Prices at the Gas Pump to Take a Dive

In an unprecedented move, the U.S. government and 27 allies abroad announced they would release millions of barrels from strategic oil reserves with the aim of reining in gas prices. Thirty million barrels of oil will be released from the Strategic Petroleum Reserve, previously used only in times of war and or a natural disaster.

As a result, Apple Valley consumers will see a drop in price—about 10 to 20 cents per gallon—over the next few weeks, an industry analyst said.

The low gas price in Apple Valley for a gallon of unleaded gasoline currently is $3.45. According to an index of Twin Cities gas prices from the last 12 months, gas was about $2.73 per gallon in June 2010. After hitting a low of  $2.59 in August 2010, prices increased steadily until March 2011. In less than two weeks, prices jumped from an average of $3.15 in late February to $3.57 in early March.

The increases continued for the next two months, reaching a peak in early May, when the average price for a gallon of unleaded hit almost $4 per gallon. Since then, gas prices have edged back down.

Patrick DeHaan, an energy analyst for Twin Cities-based gasbuddy.com, said seasonal increases are a typical part of the production cycle, when refineries switch from winter to summer gas mixes.

“Whenever they switch over there are kinks and problems that halt gas production,” DeHaan said. “The inventory drops as a result and investors begin to worry that it will get too low, so they buy. It’s the same every year.”

The price begins to decline when refineries are up and running smoothly again. But this time around, seasonal fluctuations were exacerbated by general economic pressure and unrest in North Africa and the Middle East, DeHaan said. Political turmoil abroad influenced the market, though most of the gas used in the United States is imported from Canada or produced at home.

At the time, the Obama administration announced its intention to investigate whether the price increases were the product of illegal market manipulation, rather than a consequence of natural supply and demand. Thursday, the administration chose another course, releasing oil from the strategic reserve. According to industry magazine "Hydrocarbon Processing," the reserves have only been opened on a handful of occasions: At the dawn of the Gulf War in 1991 and during the summer of 2005, when Hurricanes Rita and Katrina severely disrupted oil production in the Gulf of Mexico.

"We are taking this action in response to the ongoing loss of crude oil due to supply disruptions in Libya and other countries and their impact on the global economic recovery," Energy Secretary Steven Chu said in a press release from the U.S. Department of Energy. "As we move forward, we will continue to monitor the situation and stand ready to take additional steps if necessary."

DeHaan said officials in Washington D.C. have threatened to take such measures before, but have never gone the distance.

“I think the industry is surprised that they followed through," DeHaan said. "The government used to just bully the industry so they got used to them crying wolf."

DeHaan said that this may create a fundamental change in a notoriously volatile market. Speculators could be discouraged from investing heavily because the government could flood the market with cheap gas and keep prices low. In effect, the release of oil reserves could create a price ceiling, which will keep prices within a predictable range. DeHaan added that global consumption has increased, particularly in China, which will ultimately keep prices from falling below a certain threshold.

Apple Valley Patch posts current gas prices each Friday afternoon;, posted at 2 p.m.