Why Are Pump Prices Falling as Oil Goes Up?

CHICAGO. July 4. KAZINFORM Gasoline prices have been falling across most of the U.S. for weeks and are now at their lowest level since January, according to data from the U.S. Energy Information Administration. That might seem like an oddity heading into Fourth of July weekend, when motorists hit the road, but over the last decade prices have been more likely to fall leading up to July 4.

During the five-week period between Memorial Day and July 4, gasoline prices have dropped in six of the last 11 years, including the previous four straight, by an average of 6 percent. The biggest decline happened last year, when the national price of regular gasoline dropped 9.4 percent between Memorial Day and the first week of July, from $3.67 a gallon to $3.35. As of July 1, a gallon of regular gas costs an average of $3.49.

What’s interesting about this year is that the decline in gasoline prices arrives as domestic oil prices rise. On Wednesday the price of a barrel of West Texas Intermediate broke $100 for the first time since September 2012. That’s partly because U.S. crude that’s been landlocked in the middle of the country is finally making it to refining hubs along the coasts. U.S. refiners are now processing 16 million barrels of crude per day, more than at any time since July 2010.

According to numbers released by the EIA on Wednesday, demand for gasoline last week jumped to 9.29 million barrels per day, the first time it’s been above 9 million since last August. Even with higher demand, the U.S. has a 24-day supply of gas, slightly above the average over the last 15 years. The U.S. is now sitting on about 223 million barrels of gas.

That big gasoline stockpile, plus long-term demographic trends suggesting Americans will be driving fewer miles in the coming years, has some analysts forecasting lower prices through the rest of 2013. “I’m gonna go out on a limb and say that prices will fall through the second half of the year,” says Tom Kloza, senior energy analyst at GasBuddy.com. “Prices will wobble a bit, but with all that crude we’re refining, combined with flat to falling demand, we should not see any sort of apocalyptic rise in gasoline prices through the rest of the year.”

Unless, of course, there’s a big hurricane.

Source: BLOOMBERG