Positive economic news could boost gas prices

Despite a roller-coaster week for crude oil, gas prices remained relatively steady this week, even dropping a few pennies in some areas.  The national average for regular grade gasoline dropped 2 cents this week to $3.45 Friday.  Prices remain 2 cents below month ago prices.  Prices remain 64 cents higher than year ago prices, yet 66 cents below the all-time high of $4.11 per gallon set in July 2008.

Crude oil crossed over the $90 per barrel threshold on Monday for the first time since mid-September.  The commodity continued to trade in the $90 to $95 range throughout the week, including a rally of more than 4 percent on Thursday upon news of a deal to resolve the Greek debt and euro zone debt crisis.  Additional support for crude oil came from data showing the U.S. gross domestic product grew at its fastest pace of the year in the third quarter, easing some investor concern that the U.S. would lapse into another recession.  Also supporting crude oil this week was a stronger U.S. dollar, which makes commodities prices in dollars more expensive for holders of other currencies.  Despite a slight dip in price on Friday, crude oil saw weekly gains for the fourth straight week, closing at $93.32 Friday.

The U.S. Energy Information Administration’s weekly report showed crude stocks rebounded from several weeks of declines, rising 4.7 million, to 337.6 million barrels.  Gasoline stocks dropped 1.4 million barrels to 204.9 million barrels.  Over the last few years gasoline stocks typically bottom out in late October or early November before rebounding.  Gasoline demand over the past four weeks dropped to 8.501 million barrels per day (bpd), a level reached a few times this year, but to find demand number below 8.5 million bpd one would have to go back to January 2004.  Compared to the same week last year, demand is off by 9 percent.

“With positive economic news at home and abroad, confidence is slowly being restored in the global economy, abating fears of a double-dip recession,” said Windy VanCuren, Public Affairs Specialist for AAA Mid-Atlantic.  “Although analysts believe gas prices will average about $3.40 per gallon through Thanksgiving, continued economic progress and strength in the crude oil markets in the last two months of the year would result in gas prices creeping upward to mimic commodity market growth.”

Motorists have been subjected to a rollercoaster ride of prices in recent weeks.  What should we expect in the weeks and months ahead? Some analysts believe motorists will see gas prices remain lower in the short term, averaging $3.40 per gallon through Thanksgiving.  However, they also see another vicious winter-spring rally ahead that could send gas prices as high as $4.25 per gallon in early 2012.