U.S. consumers facing the highest gasoline pump prices ever for February may see further increases as global crude oil futures climb and breakdowns and seasonal maintenance at refineries reduce fuel supplies.
Bloomberg reported that prices at the pump are up 14% this year and have risen 33 straight days, according to AAA data. Brent crude in London, the pricing basis for gasoline imports and for oil used by coastal refiners, advanced to a nine-month high Feb. 8.
Unit breakdowns and seasonal repairs reduced refinery processing by 8.3% since mid-December, cutting fuel production, Energy Information Administration data show. Regular gasoline has jumped 45.6 cents this year, the fastest increase in AAA data back to 2005. Prices may peak earlier than they did last year, according to Avery Ash, a spokesman for AAA, the nation’s largest motoring organization.
“What’s driving the price up is the fear we might not have enough supply,” said Jason Schenker, president of Prestige Economics LLC, an Austin, Texas-based energy consultant. “It’s a national concern.”
The average nationwide pump price gained 1.8 cents to $3.748 a gallon, 19.2 cents higher than a year ago, AAA said on its website today. In 2008, when prices reached an all-time high of $4.114, regular gasoline cost $3.032 on Feb. 18.
A combination of high crude prices, refinery shutdowns and early speculation has sent gas prices soaring to seasonal highs earlier than usual this year, with no signs of prices at the pump falling until spring, according to recent estimates.
The Christian Science Monitor reported that gas prices have climbed every day for the past 25 days, reaching a national average of $3.59 per gallon Monday, the most expensive national average ever for Feb. 11, according to AAA.
During just the past two weeks, average prices have climbed almost 25 cents, the biggest jump in gas prices in almost a year.
This is a very early rise,” says Tom Kloza, chief oil analyst at the Oil Price Information Service. “January has tended to be a quiet month through the years, but the rally really began in earnest around Jan. 15.”
Gas prices tend to increase in late February as refineries shut down for maintenance ahead of the busy summer driving season.
There are three reasons for the spike, say analysts.
Higher crude prices. This rise, especially overseas, has pushed up prices at the pump, says Michael Green, a spokesman at AAA.
“This year oil prices are rising with expectations that the global economy will continue to improve,” said Green. “Gas prices are intimately connected to oil prices, [which are] very much connected to what is going on in other parts of the world. Events overseas have a big effect on prices American motorists pay at the pump.”
In fact, crude oil prices have risen 10 percent during the past two months, and the price of crude accounts for almost 70% of the cost of a gallon of gas, according to the US Energy Information Administration.
Seasonal changes. Refineries usually shut down for maintenance in late winter, temporarily reducing gas supplies. As per federal requirements, refineries also begin transitioning at this time of year to summer blend gasoline – a more environmentally-friendly, and expensive, blend to produce. This reduces current winter blend gas supplies.
Financial market speculation. In addition, the rally has been driven by earlier-than-usual speculation that demand for oil will rise, further inflating prices, said Kloza. In a recent Commodity Futures Trading Commission report, Kloza said he calculated that there is about $45 billion more bet on higher petroleum futures than on lower ones. In other words, more traders expect oil prices to rise in the future than to fall, an expectation that causes oil producers to horde oil in the hopes they can sell it at higher prices later on. That dries up current supplies and translates to higher prices at the pump, which Kloza says we’re already seeing.
Gas prices have been on the rise for weeks, and they’re set to spike in the months ahead. Does this sound at all familiar?
According to a Time.com report, thus far in 2013, drivers have been paying less for gas, on average, than they were a year ago. During the first week of January, for instance, the national average was $3.30 per gallon, or 7 cents less than it was 12 months beforehand. But prices are rising, and the difference between current prices and 2012 counterparts is shrinking. Lately, according to AAA’s Fuel Gauge Report, the average gallon costs $3.42 nationally, compared to $3.45 a year ago.
USA Today reports that prices have risen by 20 cents or more in recent weeks in several Midwest states, and that prices in California are expected to spike soon to over $4 per gallon, up from around $3.75 currently.
So is it time to panic? Nah. More likely, the reaction of drivers is more along the lines of, “Oh well, here we go again. What’re you gonna do?”
And also: “Hey, prices are still cheaper than they were a little while ago.” The average price per gallon was $4.67 in California as recently as October, and many stations in the state were charging more than $5. After facing the most expensive year ever for gas in 2012, drivers have heard that prices are supposed to be cheaper in 2013.
Oil Price Information Services’ Robert Gough told the Des Moine Register, “Gasoline prices averaged $3.60 per gallon last year, and we think they’ll average between $3.25 and $3.50 per gallon this year.” The U.S. Department of Energy, meanwhile, has predicted an average of $3.44 per gallon this year, and $3.34 for 2014.
In the grand scheme, a short-term seasonal surge in gas prices probably isn’t enough to make drivers bat an eye. We’ve been hearing about the likelihood of dramatically higher gas prices for decades, and we’ve been living through periodic price spikes at least since the summer of 2008—which was followed by sharp hikes in springtimes of 2011 and 2012. New-car MPG ratings have risen accordingly, as drivers increasingly opt for more fuel-efficient vehicles and federal guidelines force automakers to steer away from the gas-guzzling vehicles of the past.
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At least gasoline should cost you less in 2013.
Hamburger, health care and taxes are all set to take a bigger bite out of the family budget this year. But drivers’ annual gas bills are expected to drop for the first time in four years.
Forecasters say ample oil supplies and weak U.S. demand will keep a lid on prices. The lows will be lower and the highs won’t be so high compared with a year ago. The average price of a gallon of gasoline will fall 5 percent to $3.44, according to the Energy Department.
“Everything is lining up to lead to softer prices this year,” said Tom Kloza, chief oil analyst at the Oil Price Information Service.
That would still be the third-highest average price ever. But a discount of 19 cents per gallon from 2012 would save the typical household $205 this year and free up $25 billion that could go instead to restaurants, malls or movie theaters — the kind of consumer spending that accounts for 70% of American economic activity.
“It’s a little benefit to the economy, and it’s a little more reason the Fed doesn’t have to worry about inflation,” said James Hamilton, an economist at the University of California at San Diego who studies energy prices.
Forecasters caution that they can’t predict other factors like Middle East tensions, refinery problems or hurricanes along the U.S. Gulf Coast — in other words, the same events that caused gasoline prices to spike in 2011 and 2012. Any or all of those troubles could crop up again in 2013 and push pump prices above last year’s record average of $3.63 a gallon.
According to an Associated Press report, the government expected gas to average about $3 during 2011. Then came the Arab Spring, which included the shutdown of Libya’s oil production. Oil prices shot up, and gasoline averaged $3.53 for the year. The government’s forecast for last year also turned out to be too low, by 18 cents per gallon.
And, Hamilton said, consumer spending might not see a boost from lower gasoline prices because most Americans will be paying higher taxes. The expiration of last year’s payroll tax reduction will cost an extra $579 for households making $40,000 to $50,000 in 2013, according to the Tax Policy Center, a non-partisan Washington research group.
But after average gas prices rose in 2010, 2011, and 2012, a little relief will be welcome in 2013.
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The average price of a gallon of regular gasoline in the U.S. this year never reached the highs seen in 2008, when the all-time record of $4.114 was reached. The 2012 average never even climbed as high as it was last year, when it hit $3.965, according to the Energy Department.
But fuel prices have been so consistently high in 2012 that American motorists are on pace to spend more on gasoline this year — $483 billion, or $1.32 billion a day — than they ever have before, according to the Oil Price Information Service (OPIS) in New Jersey, the Los Angeles Times reported.
That would break the old record for the amount of money spent by Americans on gasoline, set last year, by about $12 billion. That’s in spite of the fact that the U.S. average topped out this year at $3.941 a gallon back in April.
Analysts say the most remarkable thing is that high gasoline prices didn’t have the chilling effect on consumer spending that they did four years ago.
“Americans seem to have accepted the news on high fuel prices with aplomb,” said Tom Kloza, chief oil analyst for OPIS.
Gasoline prices this year were driven, in part, by high oil prices. They were also affected by consistently high exports of U.S.-produced diesel and gasoline to customers overseas.
A third factor involved periodic regional spikes that helped keep the national average high.
Three Spikes in 2012
The first of those spikes occurred in the Midwest, where petroleum pipeline ruptures and refinery outages kicked prices sharply higher.
The second occurred in October in California, where prices hit a new state record of $4.671 a gallon, sparking several calls for federal and state investigations of refinery practices.
More recently, damage from Hurricane Sandy along the Eastern Seaboard shut down several refineries and led to temporary fuel rationing in New York and New Jersey.
These impacts canceled out the fact that U.S. demand for motor fuel, running at around 8.7 million barrels a day so far this year, is at its lowest level since 2001, Kloza said.
The U.S. Energy Department said earlier this year that the average price for a gallon of regular gasoline was running at about $3.64 in 2012, up from last year’s record average of $3.53.
There is some good news. Fuel prices are expected to average about $3.44 a gallon in 2013, the Energy Department projects.
The U.S. will become the world’s top producer of oil within five years, a net exporter of the fuel around 2030 and nearly self-sufficient in energy by 2035, according to a new report from the International Energy Agency.
It’s a bold set of predictions for a nation that currently imports some 20% of its energy needs, according to a report by the Los Angeles Times.
Recently, however, an “energy renaissance” in the U.S. has caused a boost in oil, shale gas and bio-energy production due to new technologies such as hydraulic fracturing, or fracking. Fuel efficiency has improved in the transportation sector. The clean energy industry has seen an influx of solar and wind efforts.
By 2015, U.S. oil production is expected to rise to 10 million barrels per day (bpd) before increasing to 11.1 million bpd by 2020, overtaking second-place Russia and front-runner Saudi Arabia. The U.S. will export more oil than it brings into the country in 2030.
Around the same time, however, Saudi Arabia will be producing some 11.4 million bpd of oil, outpacing the 10.2 million from the U.S. In 2035, U.S. production will slip to 9.2 million bpd, far behind the Middle Eastern nation’s 12.3 million bpd. Iraq will exceed Russia to become the world’s second largest oil exporter.
At that point, real oil prices will reach $125 a barrel. By then, however, the U.S. won’t be relying much on foreign energy, according to the IEA’s World Energy Outlook.
Globally, the energy economy will undergo a “sea change,” according to the report, with nearly 90% of Middle Eastern oil exports redirecting toward Asia.
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The average U.S. price for a gallon of regular gasoline took its biggest drop since 2008 in the past two weeks, due to lower crude oil prices and a big price drop in pump prices in California and Hurricane Sandy, according to a widely followed survey released on Sunday (Nov. 4).
Reuters reported that gasoline prices averaged $3.5454 per gallon on Nov. 2, down 20.75 cents from Oct. 19 when drivers were paying $3.7529 at the pump, Lundberg said.
The decline was the biggest two-week price drop since the survey recorded a 21.9 cents price decline Dec. 5, 2008 due to a crash in petroleum demand during the global recession.
Even though many people had to line up for gasoline for hours after Sandy devastated much of the Northeast coast, the storm played a part in the price decline as many would-be consumers were not able to travel as a result, according Trilby Lundberg, editor of the Lundberg Survey.
Lundberg also cited the seasonal dip in demand that typically comes after August.
While demand appeared to be very high for gasoline in New York and New Jersey after the storm, Lundberg said that purchases were down because many people could not get to fuel.
However, supply shortages were not causing an increase in the average price of gasoline, according Lundberg.
“There is a fear among retailers that they will be accused and prosecuted for price gouging if they raise prices enough to prevent running out,” she said, adding that the problems would be unlikely to end soon.
“It’s going to be a long and hard recovery for infrastructure and fuel supply but also for fuel demand,” Lundberg said.
Another reason for the total U.S. price decline in the latest survey is California, the biggest state consumer, where pump prices fell 49 cents in past two weeks after an extreme price increase a month ago because of refinery problems.
The Nov. 2 survey shows that gas prices have fallen a total of 29.21 cents in the last month, Lundberg said.
Crude oil prices rose towards $110 on Tuesday (Oct. 29), supported by worries of potential supply disruption on the U.S. East Coast, being battered by Hurricane Sandy, although fears of weaker demand from the storm-hit region capped gains.
Reuters reported that U.S. refinery and pipeline companies will begin assessing the storm damage, hoping their flood defenses and on-site power would allow operations to resume swiftly.
But even if refineries escape unscathed, any damage to the vast network of oil terminals, pipelines and trucking facilities in the region could complicate supply logistics.
Brent crude for December rose 13 cents to $109.57 a barrel in early trading, recovering from a fall to $108.75 earlier in the session. U.S. crude for December was up 40 cents at $85.94.
U.S. gasoline futures were little changed at $2.7530 a gallon, after climbing more than 5 cents on Monday on expectations of tighter supply.
“The shutdown of refineries basically means that there are breaks in the supply chain,” said Michael Hewson, senior markets analyst at CMC Markets. “(This) means there will be a little bit of scarcity, so that can still underpin prices.”
Fuel supply into the region ground almost to a halt with the closure of two-thirds of the region’s refineries, its biggest pipeline and most major ports.
Americans thinking about driving over the river and through the woods for Thanksgiving could be in line for a nice surprise: lower gas prices.
CNN reported that prices have fallen 3.8% over the past 11 days to a national average of $3.67 a gallon for regular, according to motorist group AAA. And analysts say the price could fall another 30 cents by Nov. 22, Thanksgiving Day.
Patrick DeHaan, senior petroleum analyst at Gasbuddy.com forecasts prices falling to $3.35 a gallon by Thanksgiving. Between Thanksgiving and Christmas, he sees prices in the range of $3.25 to $3.45 a gallon.
Ben Brockwell, director of data, pricing and information services with Oil Prices Information Service, also sees prices falling, although not as steeply, to below $3.50 a gallon.
One reason for the forecast: Brockwell says wholesale prices have dropped as much as 30 cents a gallon in some markets. By comparison, the national average has fallen 12 cents over the past week. By that measure, Brockwell says the recent decline still has room to run.
There is typically a lag before a decline in wholesale prices is reflected at the pump.
In June, amid plummeting gas prices, the prospect of a $3-per-gallon national average seemed like it could become a reality by Halloween.
Time reported that after reaching the most expensive ever gas prices for September — which came on the heels of the highest-ever end-of-summer gas prices — that forecast seems highly unlikely to become reality. But at long last, drivers are finally seeing some relief at the pump.
The latest Energy Information Administration report indicates that the national average for a gallon of regular stood at $3.826 as of September 24. That’s about 5 cents cheaper than the week before.
Gas prices were expected to start declining in August, but Hurricane Isaac, refinery problems, and other factors boosted prices higher. The result: this week is the first time gas prices have declined since way back in early July.
Drivers in some states are getting a bigger break than others. In Michigan, for instance, the the average gallon was 10 cents cheaper in one week’s time, dropping from $4.05 to $3.95. According to AAA’s Fuel Gauge Report, average prices in seven states still remain over the $4 mark (Alaska, California, Connecticut, Hawaii, Illinois, New York, Washington).
It’s also noteworthy that the national average is roughly 30 cents per gallon more than a year ago at this time.