Pump prices expected to drop to a three-year low

Gasoline pump prices in the U.S. are poised to drop to the lowest since February 2011 by New Year’s Eve as supplies increase more than demand, providing a lift for consumers in an economy struggling to recover from the deepest recession since the 1930s.
Retail prices will probably sink to an average $3.15 a gallon by Dec. 31 from $3.339, Michael Green, a spokesman in Washington for AAA, the nation’s largest motoring organization, said last week. The highest seasonal inventories in three years are set to rise as plants return from scheduled maintenance. Refining capacity in the fourth quarter will be 410,000 barrels a day higher than last year while demand climbs 10,000 barrels, the Energy Information Administration estimated Oct. 8.
U.S. refiners are making the most gasoline ever for this time of year, having expanded to take advantage of ample domestic and Canadian crude. U.S. oil production grew in September to the highest level since May 1989 as advances in drilling techniques boosted output from shale formations. The U.S. met 87 percent of its own energy needs in the first six months of 2013, on pace to be the highest annual rate since 1986.
“We’re in a longer-term down-trend with retail gasoline prices because of reduced demand, increasing U.S. production of oil as well as increased refining capacity for gasoline,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, said last week in a telephone interview.
Retail prices have fallen 25.5 cents since the end of August, as the 2013 Atlantic hurricane season was shaping up to be the first in almost two decades without a major storm disrupting Gulf Coast production. The season runs from June 1 to Nov. 30. The U.S. was awash in gasoline as refiners shut units for maintenance. Inventories were 217.3 million barrels as of Oct. 11, the most for this time of year since 2010, EIA data show. As many as 900,000 barrels a day were planned to be offline in October, the peak of the U.S. fall turnaround season, according to Amrita Sen, chief oil-market strategist at Energy Aspects Ltd., a research company in London.
Production of the fuel in the week ended Oct. 11 increased to 9.34 million barrels a day, 3.2 percent higher than a year earlier and the most for this time of year in EIA data going back to 1982. There was enough gasoline in the U.S. to cover 24.6 days of supply, 6.8 percent above the five-year average.
Even with plentiful gasoline supplies, refiners may increase production to capture strong distillate margins and feed the global demand for diesel. Ultra-low-sulfur diesel’s crack spread versus WTI on Nymex, a rough measure of refinery profit margin, was $25.87 a barrel last week while gasoline’s spread versus WTI was $9.95 a barrel.
“Refiners will probably ramp up pretty quickly to have diesel for export and even refinery margins for gasoline aren’t that bad,” Chirichella said.
The drop in gasoline prices is bringing relief to consumers just as the nation emerges from a government shutdown, the labor market expanded slower than projected in September and existing home sales fell for the first time in three months. •

No posts to display