“We cannot live only for ourselves. A thousand fibers connect us with our fellow men” - Herman Melville
Leave it to the Utah Legislature to, not only upset people in our great state, but, this week, they also found a way to upset our Idahoan neighbors to the north.
House Bill 575 was presented Monday to the legislature. The purpose of the bill is to lower the fuel tax we pay each time we fill up. To make up for the reduced tax revenue, they proposed increasing taxes on fuel sent from our Utah refineries to other states, like Idaho. Idaho did not appreciate this, and it could very well be a violation of the Commerce Clause of the US Constitution.
We’re keeping our eye on this bill and will keep you updated as it plays out.
Over the past week, Utah gas prices barely moved. AAA shows the statewide average for regular at $2.794 per gallon on Feb. 19, up from $2.788 a week earlier. That’s just a 0.6 cent increase. Most cities around the state saw similar tiny bumps, generally a penny or so, which tells us this wasn’t some big local disruption. It was more of a slow, normal pass-through from slightly firmer wholesale prices rather than anything dramatic at the pump.
Driving Factors this week:
Gasoline wholesale prices increased across the Rocky Mountains
Oil and gasoline inventories saw a larger reduction than expected
Risk of war in the Middle East rises as US builds military presence in the region
Refineries across the Rocky Mountains increased their wholesale price of gasoline this past week by $0.06/gal. The full amount of this increase hasn’t made its way to our pumps in Utah… yet. I expect, over the next week or two, we’ll see the rest of the price increase make it to our local gas stations. Prices rose as a result of 1) crude oil prices rising and 2) supply isn’t keeping up with the unusually high demand going on right now.
The US continues to increase the amount of military presence around Iran. We haven’t had this many ships and planes in the region since the kickoff of the last Iraq war. While a war with Iran would greatly reduce the amount of oil they are able to export, the real threat to the global oil supply lies in the Strait of Hormuz, which is controlled by Iran. 20% of the world’s oil flows through that narrow strait, and if Iran stops ships from passing through, oil prices will spike. Big time.
The Crude Crystal Ball: Forecasting Prices
Low Market Momentum
Seasonal Demand Above Normal
Geopolitical Risk Premium in Crude Markets
I expect Utah gas prices to drift sideways this week, likely staying within a $2.79 - $2.85 range. While recent price changes have been flat, a slight upward lean is possible. This "gentle nudge" stems from U.S. gasoline inventories coming down and rising demand, coupled with crude oil volatility driven by Iran tensions. I don’t see any factors over the next week that will push prices down, so we might not see gas prices around $2.50/gal again for a while.
At the same time, crude oil is bouncing around on global headlines, and small ripples anywhere seem to be felt everywhere. While we aren't seeing any major supply drama nearby, refineries will continue making their summer-blend of gasoline, which costs more to make, and we should expect a steady climb over the next month.
If the US decides to start dropping bombs on Iran in the next couple weeks, these forecasts are going to change. Drastically.
What Happens at the Pump… Doesn’t Stay at the Pump
Politicians start from a place of good intentions, and then the complexities of the real world show up. It’s hard to know just how our actions will affect us and our neighbors around us. This week, our Utah Legislature quickly learned that trying to pass the financial burden from Utah drivers to our neighboring states comes with with its own set of negative externalities. (Like getting angry phone calls from Idaho state representatives)
Think of Externalities as the "uninvited guests" of the economic world. In a perfect transaction, you pay for gas, the station gets your money, and everyone is happy. An externality happens when that transaction creates a "side effect" that hits a third party who wasn't even involved. It’s like your neighbor throwing a rager; they’re having a blast and the pizza guy is making a sale, but you’re the one stuck awake at 2 AM paying the "cost" in lost sleep.
I don’t know how HB 575 is going to play out, but I’m sure there will be a lot of back and forth with everyone involved, especially our out-of-state neighbors, before they settle on a final solution. I’m curious to see what will come from it all, and when I know, you’ll know.
Thanks for reading!
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Thanks for being along on our journey,
-Mark Acor, [email protected]
