AAA: Gas prices ease slightly
The average U.S. retail price for regular gasoline dropped 2 cents to $2.53 Friday, $1.17 below year-ago prices and $1.58 below the record price of $4.11 set last July. Current gasoline prices are in stark contrast to the then-sky-high prices seen one year ago in the aftermath of Hurricanes Gustav and Ike, which interrupted refining and production. So far this hurricane season, the U.S. has not experienced any disruptions in production.
Crude oil began the week above $72, only to settle more than 8% lower on the week at $66.02 Friday. Oil’s early week rise, in part due to the weak U.S. dollar, was later erased as crude declined in light of weak August U.S. home sales data and high crude inventories fueled doubts about a potential fuel demand recovery.
In its weekly report, the Energy Information Administration said crude stocks rose 2,8 million barrels to 335.6 million barrels, against a forecast for a 1.5 million barrel drawdown, but much larger than the 276,000 barrel build in the American Petroleum Institute’s weekly data. The EIA report also showed gasoline supplies soared 5.4 million barrels to 213.1 million barrels, more than the API’s 3.8 million barrel increase and dwarfing the forecast for a 400,000 barrel rise. Also this week, the EIA report confirmed what analysts’ have suggested, demand is poor. Last week’s gasoline demand was just 8.79 million bpd, down 211,000 barrels from the previous week.
Also this week, the Group of 20 (G20) called its summit this week in Pittsburgh a success. During the meetings, the G20 pledged to keep emergency stimulus supports in place until sustainable recovery is assured, launch a framework for acting together to rebalance economic growth and establish tougher rules governing banks by 2012. The economic leaders also agreed to phase out subsidies for oil and other fossil fuel as part of efforts to combat global warming. Some $300 billion a year is spent worldwide to subsidize fuel prices, boosting demand in many nations by keeping prices artificially low, leading to more emissions.
“As expected, prices at the pump continue to hover around the $2.50 a gallon mark as we enter a seasonally soft demand period,” said Martha M. Meade, manager of public and government affairs for AAA Mid-Atlantic. “Likewise, crude oil continues to trade within the $60 to $75 range. Coupled with sluggish demand and slow economic recovery, and barring any unforeseen natural or political development, gasoline and crude oil are not expected to move in any meaningful direction as we head into the fourth quarter of 2009.”
As has been the story for all of 2009, oil prices have been driven mostly by the perceived direction of the global economy. Investors know that when economic activity increases so will demand for oil and gasoline. However, while the majority of the leading economic indicators are now heading in a mildly positive direction, there are conflicting opinions on whether or not the economy will grow with any zeal before the second or third quarter of 2010. And with the world’s top two energy consumers (the U.S. and China) facing long term energy demand concerns, prices are likely to remain stable for the remainder of 2009.
On the international front, Nigeria’s foreign minister said a government amnesty in the Niger Delta was working, noting oil output was set to rise as a cease-fire holds.