A gallon of gas on track to stay below $3 this spring
With crude oil stocks high and gasoline demand low, US drivers may get a reprieve from the customary spring spike in gasoline prices this year.
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Lower gasoline prices may be one reason consumer confidence is starting to improve.Skip to next paragraph
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“Our confidence numbers are showing a significant increase,” says Jacobe of Gallup. “I think the lower gasoline numbers will be a substantial help.”
At the same time, Americans will also start to see a small increase in their paychecks as a result of a reduction in federal income-tax withholding rates. Fifty-five million Americans living on Social Security or Supplemental Security Income, moreover, will get a one-time check of $250.
For gas prices to remain at these levels over the next several weeks, the Organization of Petroleum Exporting Countries (OPEC) will have to stick to its self-imposed quotas. “So far, they seem to be in a 80 to 90 percent range for compliance,” says John Felmy, chief economist at the American Petroleum Institute in Washington.
OPEC has cut production for seven consecutive months, according to news reports. However, some countries, notably Iran and Venezuela, are producing above their quotas. The price of crude oil is about $50 a barrel, up from its lows of about $40 set in February.
US inventories of crude oil are currently relatively high, at 360 million barrels – 40 million barrels higher than the average of the previous five years, according to the Energy Information Administration (EIA). However, inventories have declined slightly from this winter.
“The surplus is slowly being worked off,” says Tancred Lidderdale, an energy analyst at EIA.
Gasoline inventories are also higher than normal by about 7 million barrels. But they are also starting to come down as Americans begin to drive more. “Gasoline demand has firmed up,” says Sander Cohan, an energy analyst at Energy Security Analysis Inc. in Wakefield, Mass. “We’re getting a bump from lower retail prices.”
Despite an uptick in demand, refiners are still operating at 82 percent of capacity, estimates Mr. Cohan. “There is tons of spare capacity,” he says.
For example, diesel demand has fallen so sharply that “you have to go back to 2000” to find similar numbers, Cohan says. Only a year ago, diesel demand was so strong that it was a factor in rising prices. “Now, with industrial demand low, no more need for heating oil, and the economy in recession, there is no place for the supply to go.”
Two years ago, the price of ethanol was also booming, reflecting tight supply and demand factors. Today, ethanol prices are very low. “It’s a nonfactor,” Cohan says.
The EIA still expects gasoline prices to rise, as they do every year at this time, but not by much. The futures markets are forecasting that the price of crude oil will rise by about $6 a barrel by the end of summer, says Mr. Lidderdale.
The gasoline futures market, however, is less sanguine, forecasting an increase of five cents a gallon by summer's end. That may be too pessimistic, Lidderdale says. But, he adds, “right now we don’t expect prices to shoot up to $4 a gallon, much less $3 a gallon this year.”