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AAA: Gas prices on downward trend?

Prices at the pump have finally begun their seasonal decline, about one month later than usual.  Although gas prices are higher than ever for this time of year, a downward trend has begun across the country.

The national average price for a gallon of regular self-serve gasoline fell to $3.72 per gallon Friday, which was 9 cents below week ago prices and 13 cents below month ago prices. However, gas prices remain 25 cents above year ago prices and 39 cents below the record high set back in July 2008.  Gasoline prices typically decline in the fall as refiners switch to cheaper fuel blends and demand decreases after the summer driving season. This year a series of refinery and pipeline problems sent gasoline supplies plummeting and prices soaring.

Crude oil prices remained relatively flat this week, balanced out by global financial concerns and geopolitical tensions.  Investors remained cautious as European Union policymakers met to discuss the next steps in Greece’s fiscal recovery, while at the same time they waited to see if Spain would formally request a bailout, which kept crude oil prices from skyrocketing.  However, crude oil prices are being supported by U.S. and European sanctions on Iranian energy exports, as European Union officials recently tightened sanctions on Iran.  Reports have been surfacing that Iran has plans to dump crude oil into the Strait of Hormuz.  Adding to the mix were growing tensions between Syria and Turkey, combined with how much more support Iran will grant the Syrian administration in its civil war, all of which is creating additional instability and preventing crude prices from dropping.  Roughly 36 percent of global oil production occurs in the Middle East and North Africa, which holds 52 percent of the world’s proven reserves (according to 2011 Department of Energy data).  Crude oil closed the week at $90.05, down nearly 2 percent on the week.

In its weekly report, the U.S. Energy Information Administration (EIA) data showed crude oil stocks rose by 2.86-million barrels, a larger than expected build, to 369.23 million barrels.  U.S. gasoline stock rose by 1.72 million barrels to 197.13 million barrels, contrary to an anticipated inventory decrease.  Gasoline demand inched up by 142,000 barrels per day (bpd) to 8.729-million bpd, 131,000 above the same week in 2011.  Gasoline demand figures impressed market watchers who believed that high prices would stir up further destruction in consumption.  Despite last week’s slight bump, most observers are not looking for a significant boost in demand between now and the Thanksgiving holiday period.

“Although much later than usual, gas prices have finally begun to fall across the country and here in the Northeast, which is welcome news for motorists who have been paying the highest prices ever for this time of year at the pump,” said Martha M. Meade, Manager of Public and Government Affairs for AAA Mid-Atlantic.  “Barring any unforeseen geopolitical events in the Middle East and/or North Africa, gas prices will likely continue their seasonal decline over the next two to three months.”

Following an uncharacteristic autumn run up in gas prices, analysts believe the end is in sight and motorists will begin to see some compelling drops in prices at the pumps in the coming days and weeks.  The drop has very little to do with crude, which has varied by less than $10 per barrel between highs and lows for the past three months, but rather a dramatic drop in U.S. spot prices and, in turn, wholesale gas prices.  Such drops are a result of panic selling, following panic buying last month.  Tom Kloza, Chief Oil Analyst at the Oil Price Information Service (OPIS) and AAA gas price partner, believes prices at the pump will drop 5 cents to 15 cents per week for the next three weeks.


Augusta Health Augusta Free Press Kris McMackin CPA
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Augusta Free Press