Tags: US | Oil | Prices

Analysts Expect Gasoline Prices to Drop as Demand Wanes

Friday, 03 Sep 2010 03:02 PM

Gasoline prices have been falling for weeks, and they could go even lower as autumn's leaves begin to drop.

The national average for a gallon of unleaded regular was $2.681 on Friday, according to AAA, Wright Express and Oil Price Information Service. That's 6.6 cents lower than a month ago and 8.5 cents higher than a year ago.

The national average has stayed below $3 a gallon for nearly two years, and most analysts think it won't return to that level anytime soon.

"We've got gasoline supplies moving higher rather than lower so until we get unemployment down, you're just not going to see much of an increase in gasoline demand," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.

The government said Friday the jobless rate rose in August to 9.6 percent from 9.5 percent in July. High unemployment means fewer commuters on the road. Combined with a glut of supply and the end of the summer driving season, it also means retail gas prices likely will continue to slip.

The last time the retail gas price was at or above $3 a gallon for most U.S. drivers was in October of 2008 after a busy summer season when prices topped $4 a gallon.

When the economy showed signs of recovering from the recession this year, experts predicted pump prices would top $3 by Memorial Day. But the price peaked at $2.92 a gallon in early May as fears about the pace of the economic recovery intensified and consumers conserved cash.

Figuring out what causes pump prices to move is a little like trying to solve a Rubik's cube puzzle. They are closely linked to crude oil, supplies, demand, where you live and the time of year.

Drivers on the West Coast, and in Alaska and Hawaii see higher pump prices than the rest of the country because of delivery costs, taxes and local pollution regulations. Motorists in Gulf Coast states tend to pay less because they live closer to refineries.

The highest prices for most drivers usually occur between Memorial Day and Labor Day, when demand picks up as vacationers join commuters and commercial drivers on the roads.

Summer gasoline blends, intended to reduce smog, can tack 10 to 15 cents a gallon onto the price, PFGBest analyst Phil Flynn said. When the switch to winter gasoline specifications occurs, it tends to lower prices.

Gasoline demand increased this summer but didn't return to pre-recession levels as many Americans stayed closer to home and took shorter trips. Pump prices ranged between $2.70 a gallon and $2.80 a gallon while crude prices were between $70 a barrel and $83 a barrel.

Meanwhile, oil inventories hit the highest combined levels in 27 years, according to Cameron Hanover energy consulting agency.

"If you look at the next five years, there's no reason to believe that gasoline will ever be in short supply like it was prone to be from, let's say, 2003 to 2007," said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service.

While an improving economy with more jobs would be good news, it also could mean higher prices. Most experts believe oil will have to range between $80 and $100 a barrel before motorists will see a $3-per-gallon national average.

Several analysts say that likely won't occur until next spring, just ahead of the summer driving season, barring a hurricane that interferes with Gulf of Mexico production.

"You really need to see a turnaround in housing prices and a turnaround in jobs to justify higher, sustained (oil) prices above $80 right now," oil trader Stephen Schork said.

In the energy markets Friday, crude prices retreated after an early jump when the unemployment report was issued. Ritterbusch attributed the reversal to the ongoing concerns about a glut of supply and sluggish demand.

Benchmark crude for October delivery fell $1.44 to $73.58 a barrel on the New York Mercantile Exchange.

In other October contracts, heating oil fell 3.01 cents to $2.0322 a gallon, gasoline slipped 3.23 cents to $1.8893 a gallon and natural gas added 8.5 cents to $3.836 per 1,000 cubic feet.

In London, Brent crude fell $1.31 to $75.92 on the ICE Futures exchange.

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Gasoline prices have been falling for weeks, and they could go even lower as autumn's leaves begin to drop.The national average for a gallon of unleaded regular was $2.681 on Friday, according to AAA, Wright Express and Oil Price Information Service. That's 6.6 cents lower...
US,Oil,Prices
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2010-02-03
Friday, 03 Sep 2010 03:02 PM
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