With summer travel now in the rearview for many motorists, retail gas prices are likely to continue moving lower through the fall due to plentiful supplies, continued weaker demand, and the mid-September switch to cheaper winter-blend gasoline.
While this would be welcome news for motorists, the possibility does remain that escalating violence in the Middle East, hurricanes or other unexpected disruptions to supply or distribution could send prices at least temporarily higher in the coming months. The national average price for regular unleaded gasoline was $3.54 per gallon Friday, down four cents from a week ago, even with month ago prices and 33 cents less than a year ago. The more than 30-cent year-over-year discount is the largest year-over-year disparity in more than four months.
While retail gas prices have stayed within a relatively narrow 20-cent range since March (between $3.47 and $3.67), West Texas Intermediate (WTI) crude oil has surged more than 25 percent from a 2013-low of $86.68 on April 17 to a multi-year high of $110.53 on September 6. Crude oil prices have drifted somewhat lower this week as investors eyed a diplomatic solution to the Syrian government’s chemical weapons attack, rather than a military intervention. At Friday’s close, crude oil settled at $108.21 per barrel, down two percent on the week. This marks the 51st consecutive settlement above $100 per barrel.
In its weekly report, the Energy Information Administration (EIA) data showed crude oil stocks dropped 200,000 barrels to 360 million barrels, well below what the market had been expecting, yet one million barrels ahead of last year’s levels. Gasoline stocks saw a 1.7 million barrel build to 217.6 million barrels. Gasoline demand dropped to 8.605 million b/d, down nearly 500,000 b/d and snapping the streak of 9 million b/d-plus readings over the last month and a half. A sharp drop off for gasoline demand after Labor Day weekend and last year saw a similar drop. The implied demand number of 8.605 million b/d for the week ending Sept. 6 is only about 90,000 b/d short of the same week of 2012.
In its Short-Term Energy Outlook (STEO) report, the EIA is forecasting a regular gasoline retail price average of $3.44 per gallon in the fourth quarter of 2013, 11 cents per gallon higher than in last month’s STEO. The annual retail average for regular gasoline was $3.63 per gallon in 2012 and is expected to be $3.55 per gallon in 2013 and $3.43 per gallon in 2014.
“Motorists are beginning to see some relief at the gas pump now that the summer driving season is winding down,” said Martha M. Meade, Manager of Public and Government Affairs for AAA Mid-Atlantic. “Plentiful supplies, weaker demand, the anticipated change to cheaper winter-blend gasoline in mid-September and a relatively mild hurricane season are reasons for decreasing prices. However, AAA cautions that the possibility always remains that escalating violence in the Middle East, hurricanes or unexpected disruptions to supplies or distribution could send prices higher.”
Although all indications point to lower gasoline prices for the remainder of the year, one unknown factor is hurricane season. The first half of the 2013 Atlantic Basin hurricane season has been one of the least active such periods on record, but that isn’t to say the U.S. won’t see a destructive hurricane in what’s left of the season. The next two weeks features a strong trough of low pressure over the U.S. East Coast, increasing the odds that any hurricane that manages to form and approach the U.S. will recurve out to sea, without affecting any land areas. Still, no one should assume the rest of the season will end with a whimper. The memory of late October 2012’s destructive Hurricane Sandy is all too fresh for those living in the Middle Atlantic and New England regions of the U.S. East Coast. Any disruption to oil refining, production or distribution due to a hurricane would certainly impact gas prices in the short term.