Low Gas Prices on High Oil Production

Brian Hicks

Written By Brian Hicks

Posted May 14, 2013

We can all expect gas prices to remain rather low through this year’s summer months.

Right now, you’re probably paying around $3.60 a gallon for gasoline – the U.S. national average – down from right around $3.75 a year ago. And this is what analysts believe to be a result of a spike in U.S. crude oil production and an overall decrease in consumer demand.

Now, I know $3.58 is nothing to gawk at, but rest assured that as the heat cranks up, fuel at the pump is going to be driven down, giving all you drivers out there a bit of relief.

And according to some forecasts, the downward-trending gas prices will continue into 2014.

Drivers should expect to pay about $3.50 on average for a gallon of regular gasoline this year; that’s a welcome drop from 2012’s $3.63 per gallon. And the best part about it: there’s no end in sight. Analysts believe that number will hover around $3.39 by 2014.

For the first time in a long time, gas prices are one thing that consumers won’t need to keep an eye on, worrying about burning a hole in their pockets. And wouldn’t it be nice to turn on the news and not have to hear about more surging gas prices?

Instead, you might turn the TV on one day and hear a report saying, “Gas prices are down yet again this week.”

Evidently, consumers are already expressing their pleasure. Retail sales were boosted in nearly every single category for the month of April – sporting goods, furniture, electronics, and clothing – and everything in between has been on the rise for all types of business since May of 2011, as this chart from the Wall Street Journal shows:

retail sales to 2013 small
[Click to enlarge]

The only constant that has gone down in that same time is the price of gas. People seem to be less pessimistic about the U.S. economy right now, and maybe it’s high time they should be – the robust housing market and growing retail sales are reflections that consumers are ready to buy.

Still, many economists didn’t expect the April retail sales results to be so promising; expectations had tax hikes from earlier in the year putting a damper on consumer spending in the spring – but this was not the case. People didn’t cut back like the experts thought they would, and it goes to show that the payroll tax increase had very little to do with consumer spending.

The Next Two Weeks

The only hurdle that consumers are likely to face at the pump is just a couple weeks away as Memorial Day weekend approaches.

For this coming week, gas prices will increase slightly in most communities; probably more so in the plains states and on the West Coast, according to GasBuddy.com. The Great Lakes will see their prices hold in the higher end of the $3 per gallon range. And areas in the South will see little change this week; same with the East Coast, which may see just a slight rise or drop in price.

And this all comes from a rally in oil prices from where they were in April, accompanied by gasoline futures. And then there is the ‘seasonal anxiety’ that almost always is seen in the petroleum market ahead of the busy summer driving season.

But the good news is, once Memorial Day is behind us, consumers should feel free to plan that road trip as things should start to cool down.

By June, prices will find themselves in that mid-three dollar range and should find a comfortable balance throughout the remainder of the summer and into fall.

Change Gon’ Come

One major reason this downward trend hasn’t really taken off before is because there were some incidents last year at a few of the major refineries. But this year, with a little luck and a lack of unexpected refining problems, 2013 has gone on without a hitch.

And because of it, we’re beginning to see the role that rising crude oil inventories can have on the price of gas.

As for decreased consumer demand, U.S. consumers are slowly but surely beginning to change their habits. When drivers were forced to pay high gas prices in years gone by, it forced many Americans to take a step back and reevaluate spending habits.

And one way to curb those habits was at the pump – becoming more health conscious, making lifestyle changes, and taking advantage of fuel efficient vehicles. And now those changes are being realized.

But let’s face it; the economy is just starting to pick itself back up. There are still those out there that say it’s going to crash, and that alone can lead some to use less gas than they might otherwise.

The only thing that could get in the way of the U.S. having a great summer at the pump would likely be hurricane season; late July and into August is prime time for hurricanes, so any major storm could have an adverse effect on gas prices.

But barring that, it’s cool summer breezes and low, steady prices at the pump.

So go on, take that nice, long drive just for the hell of it. And while you’re at it, maybe think about putting some of that leftover change into the oil industry. It’s not going to do you wrong – not this year.


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