AAA: Have gas prices peaked?

Motorists and analysts alike are wondering if gas prices have peaked for the year, falling short of record highs and bringing much needed relief at the pumps.

After surging 20 percent (or 66 cents) since the beginning of the year and topping out at $3.94 on April 6, gas prices in April have been down more days than they’ve been up in April.  The national average price for regular grade gasoline dropped 4 cents this week to $3.90 per gallon Friday.  Prices remain 9 cents higher than month ago and year ago prices, and within 21 cents of the all-time record high of $4.11 per gallon set in July 2008.

Crude oil continued its downward trend for the first half of the week, dropping to $101 per barrel Tuesday, its lowest value since February 14.  Weak U.S. jobs data last week and reports that Iran might be open to compromise on its nuclear enrichment program both put downward pressure on oil prices.  A slowing economy would be expected to consume less crude oil, which pressures prices lower.

By mid-week, crude rose on Thursday for a second straight session, lifted by a weaker dollar and expected positive economic data from China by week’s end.  However, China’s 1st quarter gross domestic product (GDP) number came in at 8.1%, lower than analyst expectations and considered a bit of a disappointment. The GDP in China is also the lowest in a little over two and a half years.  This weekend traders will be eyeing a meeting between Iran and the five permanent members of the UN Security Council plus Germany.  Typically these meetings have never yielded much in the way of negotiations, but this time may be different as tougher sanctions against Iran have essentially slammed the door for its banks to have access to the Global banking system, the value of its currency has plummeted and the economic situation appears to be dire according to reports.

Although crude flirted with the $100 mark early this week, with so many national and international variables in play that could affect crude oil prices, analysts believe double digit prices for the commodity will not be seen anytime soon.  Following gains the previous two days, crude oil settled down Friday at $102.83, after data from China showed lower-than-expected quarterly economic growth and a slip in U.S. consumer sentiment in early April due to higher gas prices.

One key factor keeping upward pressure on gas prices has been refinery concerns.  Reports this week noted Sunoco Inc.’s oil refinery in Philadelphia has at least four potential buyers, and ConocoPhillips’ refinery in the Philadelphia suburb of Trainer has one, and possibly two, offers for its idled refinery.  Tom Kloza, chief oil analyst with the Oil Price Information Service (OPIS) noted the “entire dynamic of the U.S. East Coast markets may be about to change.”  With four potential bids on the table, Kloza is pretty confident “we are not going to see the Sun Philadelphia refinery close on July 1.”  This would be much welcome news for East Coast refining.

In its weekly report, the Energy Information Administration showed the nation’s crude oil stocks rose by 2.8 million barrels to 365.2 million barrels – better than anticipated, but sharply lower than what was seen the last two weeks.  Gasoline stocks dropped 4.3 million barrels to 217.6 million barrels, continuing last week’s trend likely due to winter blended gasoline moving out of the system.  Demand for gasoline in the U.S. saw a relatively small pullback of 103,000 barrels per day (bpd) to 8.681 million bpd. However, the demand number stands out when compared to the same week last year when demand was 500,000 bpd higher.  The four-week demand average for gasoline continues to narrow a bit to 4% percent.

“Following this week’s gas price drops (in many areas), motorists are left to wonder if we have seen the peak in prices for the year,” said Martha M. Meade, Manager of Public and Government Affairs for AAA Mid-Atlantic.  “While there is a chance the market has peaked, just shy of the $4.00 mark (in many areas), some analysts caution that there are numerous variables, both nationally and internationally, that could contribute to the continued rise in crude oil prices.  Since crude oil makes up more than 70 percent of a gallon of gasoline, increased crude oil prices would undoubtedly lead to increased gas prices.  Here in the Northeast, for example, multiple East Coast refinery shutdowns have squeezed supply chains and could continue to add to the price of gas in the region this summer.”

In its Short Term Energy and Summer Fuels Outlook, the EIA expects regular retail gasoline to average $3.81 per gallon in 2012 and $3.73 per gallon in 2013, compared to $3.53 per gallon in 2011.  During the April-through-September summer driving season this year, the EIA expects gas prices to average about $3.95 per gallon, peaking in May at a monthly average of $4.01 per gallon.  The agency also noted it expects crude oil to average about $106 per barrel in 2012, the same as last month’s Outlook but $11 per barrel higher than the average price last year.  EIA expects crude to remain relatively flat in 2013, averaging $106 per barrel.