Tuesday, February 3, 2015

Gas Prices on the Rise, but No Need for Alarm

The end of $2 gasoline has probably arrived, analysts say, but average prices are still at record lows.

A motorist puts fuel in his vehicle at a Westar gas station, Friday, Jan. 23, 2015, in Miami.

A glut of oil drove the average U.S. price at the pump to $2.03 last month, its lowest point since March 2009.

It was good while it lasted.

The end of $2 per gallon gasoline has likely arrived. After falling to the lowest average price in nearly six years last month, retail gasoline costs are once again on the rise – and they’re expected to keep increasing through spring.
Still, experts say, it’s no reason to panic.

“This is not revisiting 2011 to 2014 – this is the normal increase and we’re probably a little low,” says Tom Kloza, global head of energy analysis for the Oil Price Information Service. “That’s still an awful good price.”
The average price at the pump has increased from $2.03 on Jan. 25 to $2.05 on Monday – but is still far below the average price of about $3.28 last year.

Driven by a glut of oil and falling global demand, prices had previously fallen for a record 123 days. The last time prices increased was Sept. 25.

“Many drivers are noticing an uptick in gas prices for the first time in months,” AAA spokesman Avery Ash said in a statement. “It is typical to see gas prices increase this time of year due to refinery issues, yet hopefully the consumer impact will be less problematic given how low prices are today.”
Monday’s average price was $1.22 per gallon less than in 2014.

“That’s good news for consumers,” says Gregg Laskoski, senior petroleum analyst with GasBuddy.com

Experts expected prices to rebound at about this time, when refineries start preparing to shift from winter to summer blends of fuel. Hot weather traps more air pollution, so federal law requires refineries to blend cleaner-burning – and more expensive – ingredients into their gasoline mixes than in winter. The transition begins around Groundhog Day, when many refineries deplete their stocks of winter fuel and go offline for maintenance, decreasing the supply of gasoline on the market and therefore driving up prices.

“It’s like a segment of the movie ‘Groundhog Day': For years it’s traditionally been the bottom of the market, and you could set your clocks that prices would go up from Groundhog Day to Cinco de Mayo,” Kloza explains. “Gasoline – it’s like cake that’s gluten-free in the spring and summer, but the rest of the summer, you can load it up with all sorts of cheap flour.”
The last time average retail gasoline prices fell below $2 per gallon was in April 2009.

Benchmark Brent and West Texas Intermediate crude oil prices, however, have also experienced a recent uptick, perhaps contributing to the increase in gasoline prices. The reason for the rise in crude prices is less clear, but some analysts suspect it could be a sign of oil prices achieving balance after the nearly 60 percent drop they experienced from June.

“Crude seems to be rebounding from the floor that it hit,” Laskoski says. “The hope or the expectation is that the market will find equilibrium.”
Kloza is less certain. Crude prices, he speculated, will probably increase through May, but they could then fall again if supply keeps outpacing demand. Contract negotiations between labor unions and refineries could also prove a factor, he adds, driving gasoline prices higher in the event of a strike – an event he characterized as extremely unlikely.

“For gasoline, we see this every year,” Kloza says. “Crude oil, it’s really unscripted. You’ve got new projects coming on that were orchestrated years ago when you could sell crude for $100. A year from now, do I think crude prices will be higher than they are now? Probably. But I think this spring – probably March, April, May – boy, it’s hard to figure out where it’s going to all go.”

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