GasBuddy: Lowest Gas Prices Of 2014 Unfolding Right Now
According to Kloza, the lowest U.S. average price for regular unleaded gasoline so far this year was $3.271 per gallon February 8.
The price Tuesday morning was $3.273 per gallon, down from Monday’s U.S. average of $3.279.
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More To Come
With crude oil prices at some of its lowest levels in more than two years, Kloza predicted further decreases in gasoline prices in coming months.
Utilizing GasBuddy’s pricing app, Kloza said, consumers could see even lower pump prices in November and December, with the bottom occurring sometime in January.
One of the most obvious and consistent drivers of gasoline prices has long been the price of crude oil.
"The relationship to crude is straightforward," Kolza said. "A one dollar per barrel drop in crude translates into a 2.38 cents/gallon drop in the raw cost of manufacturing gasoline."
Abundance Of Corn
In addition to much cheaper crude oil, a drop in ethanol prices has also contributed to this year’s autumn downtrend.
Thanks to a bump in corn crops, per bushel prices for the grain have dropped to the lowest prices since September 2009.
The result? Ethanol has fallen below $1.60 per gallon, its lowest price since July 2010.
"Adding ethanol to the finished gasoline mixture," Kloza said, "cheapens the finished gasoline by 10-14 cents/gallon."
Autumn Maintenance Cycle
Kloza noted that late winter/early spring refinery maintenance often results in what he calls “petro-noia,” or fear of rising gas prices due to tight supplies.
The autumn maintenance cycle is different, according to Kloza.
“In autumn,” he said, “refinery maintenance can pressure crude oil prices lower, particularly these days when U.S. output is rising at nearly 100,000 barrels/day per month.”
ISIS Not A Crisis
Although it has received a lot of attention in the news, ISIS (or ISIL) does not represent a big threat to international oil and gas prices in Kloza’s view.
“If anything,” Kloza said, “the narrative has changed. In May and June, ISIS was perceived as a threat against oil supply. Now, the actions of ISIS are perceived as a threat to the macroeconomic stability of many world economies.”
Other Potential Factors
Sporadic “refinery events,” Kloza said, could result in brief spikes in gas prices, especially since the U.S. inventory system follows a “just in time” model.
A prolonged rally, however, would require a rebound in crude prices. Despite the fact the crude market is due for such a rally, Kloza noted that for this to happen, “we’ll have to see an increase in oil demand from developing countries (China, India, South America and others) or supply tighten.”
Kloza did not believe either would be likely anytime soon.
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No Pity Party Needed
“No one needs to host any telethons or ice bucket challenges for the oil producers and refiners,” Kloza said.
“You’ll hear about price erosion eventually threatening the shale oil boom,” he added, “but it would take another $20/barrel or so of losses to put profitability in jeopardy.
At the time of this writing, Jim Probasco had no position in any mentioned securities.
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