Is US gasoline price heading for $3?

Commodities , Energy , Energy , Oil , USA Sep 16, 2014 No Comments

US gas priceRetail gasoline prices often fall as summer vacation winds down, but the speed and size of the recent decline underscore shifts in energy markets that many analysts expect to be lasting. U.S. gasoline output climbed above 10 million barrels a day for the first time on record in late April, according to the EIA, and held above that level in 11 of the 19 weeks since then.

The average is $3.428 a gallon, down 6.2 percent since Memorial Day on May 26, AAA data show. That’s the largest decline from the start of the summer driving season since 2008. U.S. refineries operated at the highest-ever seasonal rates every week since July 4.

Driving the momentum are cooling global demand, combined with continuing growth in U.S. production that partly offsets worries about supply disruptions amid turmoil surrounding the Middle East and Russia.

Gasbuddy and AAA are reporting that a lot of American states have seen gas pump prices fall in the last week: 11% in Ohio, 1.1% in New-York, 12% in Michigan, 5.2% in Illinois, … All this compares with the national average that has fallen 4.2 cents per gallon in the last week to $3.39/g, according to gasoline price website GasBuddy.com.

“The brief increase in the national average now appears over, as gas prices this past week have resumed their decline,” said GasBuddy.com Senior Petroleum Analyst Patrick DeHaan. “Not a single state saw its gas price average rise in the last week, certainly an impressive feat compared to last week. The good news doesn’t end there, either: prices will likely continue declining in the week ahead as EPA summer gasoline requirements end today in much of the country, ushering in cheaper to produce winter gasoline. Over the next month or two it is likely the national average will fall another 10-20 cents per gallon to some of the lowest prices of 2014. Additionally, some states in the south will see their average prices drop under $3/gal- perhaps even in time for Halloween,” DeHaan said.

“The bottom fell out of oil prices last week,” said Mark Jenkins, spokesman for AAA. “U.S. domestic oil production is set to hit a 45-year high by next year. Barring a major weather event in the Gulf or overseas geopolitical tensions, we should continue to see oil prices fall.”

Processors are using domestic crude that costs less than foreign imports as horizontal drilling and hydraulic fracturing in shale formations increased output to the most since 1986. Gasoline will drop another 10 to 20 cents a gallon by the end of October as retailers switch to cheaper winter-blend fuel, said Michael Green, a Washington-based spokesman for AAA, the largest U.S. motoring group.

Refineries this summer were running at record-high levels due to the increase in domestic oil production,” Green said Sept. 4 by phone. “That has helped cushion U.S. consumers from many concerns overseas and helped to alleviate any price spikes this summer.”

Fall is the traditional time when summer gasoline prices come back down to more normal levels. But this year, prices will simply continue to fall.

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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