AAA: Gas prices down slightly

The streak is over.  Gas prices dropped this week, by 0.33 cents per gallon on Tuesday, marking the first nationwide drop since Jan. 26, 2012.

Prices at the pump have been on an almost relentless rise since the end of the Labor Day weekend, with the national average price setting all-time records for prices in September, October, November, December, January and February. 

Yet while the streak was broken, analysts believe gas prices will continue their upward trend in the coming weeks.  The national average price for regular grade gasoline stabilized somewhat this week, reaching $3.76 per gallon Friday, up just 2 cents in the last week.  However, prices remain 28 cents higher than month ago prices and 23 cents higher than a year ago.  Gas prices are within 35 cents of the all-time record high of $4.11 per gallon set in July 2008.

Crude oil started the week declining slightly from the previous week’s high, however, losses were erased by mid-week upon news that the Greek debt swap would likely be successful and reports that the Federal Reserve could embark on a new bond purchase strategy.  Those headlines helped push the U.S. dollar lower and move buyers back into the oil markets (crude oil is traded in U.S. dollars and becomes more attractive to investors as the dollar weakens).  There were also some positive U.S. economic forecasts that increased hopes that the pace of job creation may be accelerating.  However, geopolitical tensions in the Middle East threaten to escalate into military conflict between Iran and the U.S. and its allies, perhaps the most significant factor fueling speculators, who many believe are betting on the likelihood of war with Iran.  The downside risk remains that high oil prices destroy demand, which is not strong right now anyway.  Crude finished the week at $107.40 Friday, up for the third straight day.

In its weekly report, the Energy Information Administration showed the nation’s crude oil stocks grew by 832,000 barrels to 345.7 million barrels.  Gasoline stocks fell 396,000 barrels, to 229.5 million barrels, which is within 500,000 barrels of last week’s tally, last year’s total and the amount reported two years ago.  Gasoline demand continues to be woeful.  EIA measured last week’s demand at 8.262 million barrels per day (bpd), down 100,000 bpd from the previous week and some 930,000 bpd behind the same week last year.  The four week gasoline demand figures were even more dismal, at 8.355 million bpd, down 7.8 percent.  Not since the first week in March 2001 has gasoline demand been so low.

“This week’s slight drop in gas prices is unlikely to bring any smiles to motorists, considering prices at the pump are expected to continue their upward trend in the coming weeks,” said Martha M. Meade, Manager of Public and Government Affairs for AAA Mid-Atlantic.  “Spring, a time when prices at the pump typically increase, is less than two weeks away and analysts believe prices will top out in the $3.75 to $4.25 per gallon range before retreating later this summer.  However, there are numerous factors in play nationally and internationally that could influence gas prices as we head into the spring and summer months, so in many ways it will be a game of wait and see.”

Despite a slight reversal in prices at the pump last week, analysts continue to believe the average price could reach $4.25 per gallon this spring, perhaps by late March or April.  However, the pace of such increases should slow.  Gas prices track crude oil prices, which have risen 8 percent since late January.  In addition, refineries have begun switching to more expensive summer blended gasoline, which will add about 10 cents to the cost of a gallon of gas.