Gasoline prices hit lowest point in 12 years
Low crude oil prices continue to have wide reaching effects as the EIA predicts average gasoline prices this summer will be at their lowest point since 2004. The forecast price for summer 2016, which runs from April through September, is $0.59 per gallon lower than the average price last summer at just $2.04. Monthly average gasoline prices are expected to increase to $2.08 per gallon in June, then fall to $1.93 gallon in September, according to the EIA.
In the United States, more than half of the vehicle-miles driven in a year occur during the summer months. For full-year 2016, EIA forecasts U.S. regular gasoline prices to average $1.94 per gallon. Lower gas prices will translate into an average household savings of about $350 in 2016 compared to 2015, and about $1,000 per household compared to 2014 when retail gasoline prices averaged more than $3 per gallon.
The dramatic drop in crude oil prices is largely responsible for the low gasoline prices, with every dollar of sustained price change for crude oil equating to $0.024 in change for retail gasoline, according to the EIA.
The price of U.S. gasoline is more closely tied to international crude oil benchmark Brent than its U.S. counterpart WTI crude oil. The EIA expects that the global oil glut will persist through 2016, keeping oil prices below $40 per barrel, about $22 per barrel less than last summer.
The EIA expects wholesale gasoline margins to average $0.47 per gallon this summer, about $0.13 per gallon lower than last summer, despite strong gasoline demand.
Information from the DOE today showed gasoline inventories fell 4.2 MMBO, three-times more than the average analyst forecast, to 239.76 MMBO.
“There’s this gasoline demand and it’s otherworldly. I can’t begin to describe it any other way,” Carl Larry, director of business development for oil and gas at Frost & Sullivan, told CNBC.
The “otherworldly” demand for gasoline will not be enough to boost prices to the same levels as last summer though, said the EIA. Gasoline production has been higher, and several of the refinery outages that caused high prices last summer have been resolved or accommodated by obtaining supply from other sources.
Oil & Gas 360® reported Standard & Poors’ economists’ global economic projections yesterday. “Oil prices are a double edged sword,” S&P Ratings Services economist Satyam Panday said in a webcast. “Still, we think lower oil prices are a net positive for the real economy.”
Panday showed a slide that addressed the lower gasoline prices:
“With the typical American household buying more than 1,000 gallons of gasoline annually, this would be tantamount to a substantial tax cut for American households — a $1 drop is $1,000 for savings, spending or paying off debt.”
