Well, tanks for the memory: Fuel price dip seen fading soon
Gasoline costs have retreated from their all-time highs in May, but energy analysts say prices will soon bottom out and begin rising again in August.
The price of a gallon of regular, unleaded gasoline has dropped 14 cents in the last month in Nevada, according to numbers from travel club AAA. The average cost has dropped just 4 cents a gallon nationally in the same time, as refinery problems in the Midwest have curbed price breaks across much of the country’s midsection.
Prices are spiraling downward thanks to gains in gasoline imports from countries such as the United Kingdom, Norway and Singapore, said John Kilduff, senior vice president of energy for MF Global in New York. Gasoline producers looking to capitalize on record prices in the spring have flooded the United States with fuel, Kilduff said.
Also suppressing prices: The U.S. refineries that convert crude oil to gasoline seem to be emerging from a string of bad breaks earlier this year.
A Sunday report from The New York Times revealed that a third of the country’s 147 refineries have reported operational disruptions in 2007. The service interruptions are partly a result of several years of delayed maintenance, as fuel producers kept their plants online full-time to supply the country’s unrelenting demand for gasoline, Kilduff said.
Changing fuel standards have also affected refineries, Kilduff said. New federal regulations require lower sulfur content in fuel, and they also mandate that refiners add ethanol to fuel to make for cleaner-burning gasoline.
"We’re asking more and more of refineries that are getting older every day," said Phil Flynn, an energy analyst with Alaron in Chicago. "We’ve pushed them as far as we can push them, and we’re seeing the effects of that."
Refinery production has risen from 86 percent of capacity a few weeks ago to 92 percent now, Kilduff said, and that’s helped rein in gasoline prices.
But the rising output won’t likely be enough to prevent a traditional August jump in gasoline prices, analysts agreed.
The price of crude oil, which makes up more than half of a gallon of gasoline, has risen in recent weeks, hitting more than $77 a barrel in intraday trading Thursday on the New York Mercantile Exchange before closing at $74.95. That’s up from $55 a barrel in January, and it’s also closing in on the record of $78.40, set in July 2006.
Oil prices are rising in lockstep with refinery output, Kilduff said. As fuel-production capacity comes back online, refineries consume more oil, and that growing demand for crude is translating into higher costs. He said petroleum prices could reach $80 a barrel before summer’s end.
August is also the height of hurricane season, noted Michael Geeser, a spokesman for AAA. The mere expectation of potentially big storms will put upward pressure on oil and gasoline prices in coming weeks, as energy traders factor in a premium based on fears of supply disruptions, Geeser said.
Demand for gasoline should also increase in August. Millions of vacationers will take to the roads for one last summer hurrah, and toward the end of the month, consumption will rise as school begins and families shuttle daily between classes and extracurricular activities, Kilduff said.
Plus, some refineries begin their winter-maintenance schedules in August, so consumers could see additional refinery troubles then.
"Everybody who wants prices to stay low needs to buy a rabbit’s foot and put it on their key chain," Flynn said.
If all those factors line up — hurricanes take out refineries along the Gulf Coast, demand surges and basic maintenance issues restrain fuel production — the nation could be eyeing $4-a-gallon gasoline, Flynn said. If no major storms come ashore, demand flattens and refinery output stabilizes, gasoline prices might go up five cents to 10 cents a gallon by Labor Day.
Kilduff said he expects fuel prices nationwide to rise 10 cents to 15 cents a gallon through August, for an average cost of between $3.08 and $3.12. But because Nevada often has higher gasoline prices than the rest of the country, fuel in the Silver State could set motorists back by about $3.50 a gallon, well above the record of $3.20 a gallon on May 29, he said.
AAA doesn’t predict gasoline prices, but Geeser said he didn’t expect costs to rise enough to top May’s highs.
"Given how far prices have fallen over the past month, it would almost seem an impossibility to believe we would ever get near our earlier record," Geeser said. "You can never say never, but we are a long way from that record. We know it can happen, but it just seems very unlikely."
