While gas prices inched lower through the first half of the summer driving season, rising crude oil prices have triggered an upswing in prices at the pumps, perhaps signaling prices have hit a seasonal low. The national average price for regular unleaded gasoline rose seven cents this week to $3.55 per gallon Friday. This is eight cents higher than month ago prices, but remains 17 cents more than year ago prices. Before the recent upswing, gas prices reached what could have been a seasonal low of $3.47 per gallon on July 7. In 2011, the national average reached a seasonal low of $3.54 per gallon on June 30. In 2012, it bottomed at $3.33 on July 2.
Crude oil continued to trade above the $100 per barrel mark since July 3, levels that have not been seen in over a year. Fueled by a nearly 10 million barrel weekly decline in crude oil inventories – nearly 20million in two weeks – crude oil jumped past $107 per barrel by mid-week. Prices have also been pushed higher due to escalating protests in Egypt. As was the case in 2011 when then-President Hosni Mubarak stepped down following violent demonstrations, unrest in Egypt raises concerns of potential disruptions at the Suez Canal – a major shipping route for oil – and the possibility that unrest might spread to other countries in the Middle East and North Africa. Crude oil settled at $105.95 Friday, up 2.6 percent on the week and posting its third straight weekly rise. Crude prices have gained more than 7 percent in the first third of July and more than 14 percent since Memorial Day.
In its weekly report, the Energy Information Administration (EIA) data showed crude oil stocks dropped 9.9 million barrels to 373.9 million barrels. With a two-week, 19 million barrel draw (the biggest two-week drop in inventories in 30 years), U.S. crude oil inventories have moved to a deficit to last year after many months of year-on-year surpluses. Altered logistics and a surge in refinery runs can be cited for some of the reshuffling, but traders will actively monitor the rest of July and determine whether demand for crude might tighten supplies into the peak of the hurricane season. Gasoline stocks fell 2.6 million barrels to 221million barrels and gasoline demand managed to nudge 5,000 higher barrels per day (bpd) to 9.299 million bpd, up 382,000 bpd from last year. The four-week average shows a year-on-year gain of 218,000 bpd.
“After several months of declines, it is quite possible that we have seen gas prices reach their seasonal low,” said Martha M. Meade, Manager of Public and Government Affairs for AAA Mid-Atlantic. “Experts are warning motorists to brace themselves for what could be sticker shock at the pump in the weeks ahead. A combination of higher wholesale gas prices, an increase in summer demand and concerns about instability in Egypt and North Africa has already sent prices higher in the past week, a trend that could continue through the remainder of summer.”
As a “perfect storm,” of sorts, aligns – higher wholesale gasoline prices and a jump in crude oil prices, coupled with geopolitical concerns in Egypt and an unusually large drop in U.S. crude inventories over the last two weeks – gasoline prices are expected to rise sharply in the coming days. Short-term, gas prices are likely to go into the $3.60 to $3.70 per gallon range, according to Tom Kloza, chief oil analyst for OPIS and AAA gas price partner. Gas prices peaked so far for 2013 on Feb. 27 at $3.79 per gallon and were last above $3.65 per gallon in May.
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Chris Graham
