Oh, how the market turns.
Two months ago Southwest Coloradans were enjoying the lowest gas prices in the state. Durango even briefly recorded the lowest gas prices in Colorado. And even more surprising, pump prices were about 30 cents higher than they are today.
Now, excluding luxury resort markets like Aspen and Telluride, Durango has the highest prices in Colorado. Even Vail with a price of $1.84 per regular unleaded had lower prices than Durango’s average of $2.16 on Wednesday. On Thursday, prices had dropped to $2.11 at Peerless Tires in Durango and to $2.15 in Cortez Speedway stations.
What gives?
Wade Litt, an assistant professor of economics at Fort Lewis College, and Skyler McKinley, director of public relations and government affairs for AAA Colorado, agree on two principal reasons why market gods no longer favor our region:
First, much of Southwest Colorado is a drive-to tourist destination, and older, more expensive gasoline is staying in underground tanks at gas stations longer because a good chunk of the market, tourists, are not arriving and buying down the stockpile.That means gas station owners want to at least break even on their more expensive gas in underground tanks. The drop in crude oil prices is more rapidly reflected on the Front Range and in Albuquerque where supplies are turned over more quickly.
Second, fewer competitors in small markets like Durango, Cortez, and Pagosa Springs, means less incentive for gas stations to lower prices. The gasoline business is a relatively low-margin commodity, and because owners have only three or four other competitors in Southwest Colorado there is less competition on price than in metropolitan areas where scores of companies are driving prices down.“There’s bigger margin on the Diet Coke in the convenience store, and that’s why they want you to stop and shop,” McKinley said.
Why haven’t gas prices dropped as rapidly in Southwest Colorado?
The price of oil has fallen dramatically this year with most of that fall occurring since early March and the outbreak of COVID-19.
West Texas Intermediate, the crude oil that supplies much of the United States, had a peak price this year on Jan. 6 at $63.27. Its low price was set March 30 at $14.10, and it finished Wednesday at $19.87, more than a 68% drop.
That certainly has not been reflected in the gas prices in Southwest Colorado.
“Southwest Colorado is a driver-destination tourist market and a lot of this gas just isn’t leaving the tank,” McKinley said of the travel-restricted world brought on by the COVID-19 pandemic.
“It’s very likely that somebody in Southwest Colorado might have bought gas for a much more expensive rate, but in Albuquerque, and in metro-Denver, they’ll get that gas out the door pretty quickly, and then they’ll buy the cheaper gas,” McKinley said.
Litt said he expects gasoline prices will decrease over time in Southwest Colorado as older, more expensive gas depletes and if the crash in oil prices continues.
“We would expect to see prices decline over time,” Litt said. “In urban centers, they are going to go through gas a lot faster. They’re turning it over more quickly.”
Witt also said more competition in cities helps explain relatively higher prices in Durango and Cortez.
“There’s just less incentive for them to drop prices. Prices are more inelastic in smaller markets, and the people who still do need to drive, they’re frustrated,” he said. “They see the prices, but if you just don’t have the competition they can keep the prices high.”
Ruth Stafford of Lewis said she’s pleased with the lower prices, including the $2.17 price she discovered Wednesday at City Market in Cortez.
“I get my gas here because I can use my (shopper’s card) points, so it makes it cheaper. Do I wish we could get gas for $1.70 like they do in Denver? Yeah, with the card, that would make it really affordable.”
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