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Gasoline Likely to Stay Below $4 this Summer

May 25, 2011
Pumping gas fuel
  

By Steve Leer, Purdue University

Drivers have something worth honking their horns over: Summer gasoline prices likely will remain below $4 a gallon, a Purdue Universityagricultural economist says.

 
Market conditions that caused oil prices to shoot past $110 a barrel have improved in recent weeks, pushing oil back under $100 a barrel, said Wally Tyner, an energy policy specialist. He cautioned that pump prices could rise again if oil production is interrupted.
 
Memorial Day weekend traditionally marks the beginning of the summer driving season.
 
"If crude oil stays below $100 - meaning that there are no further production disruptions in the Middle East or elsewhere and we have no further weather conditions or other factors that cause refining outages - we have seen the worst," Tyner said. "We can hope for steady or even somewhat falling prices over the next few months."
 
Motorists have experienced severe gas pains this spring, with pump prices in some places topping $4.25 a gallon. Prices have soared for several reasons, Tyner said.
 
"First, there was the conflict in Libya that sent crude oil up about $15 per barrel," he said. "That normally translates to an increase at the pump of about 40 cents per gallon.
 
"Shortly after that event, we had the change from winter to summer blend gasoline. That change occurs on May 1, and the impact is felt a bit before that as refineries and stations make the switch. Summer blends normally are about 10 cents per gallon higher than winter."
 
Domestic oil refining also hit a snag. Refineries on the East and West coasts experienced outages, and excessive spring rain and flooding slowed barge traffic on the Mississippi River, affecting Gulf Coast refineries.
 
"The combination of these factors sent what are called 'refining margins' off the chart," Tyner said. "Normal refining margins are about $12 per barrel. These events sent refining margins on average to about $23 for a short period, and up to $30 in the Chicago area. These extraordinary refining margins added another 26 cents or more per gallon at the pump."
 
All told, these issues tacked on at least 76 cents to a gallon of gas, Tyner said.
 
Although crude oil prices have retreated, they are still higher than a few months ago, Tyner said. Refining margins are again in the normal range, but it will take time for those lower margins to be reflected in retail prices. Consumers will continue to pay the summer gas premium of about 10 cents per gallon, he said.
 
"What happened this spring is not likely to be repeated," Tyner said.
 

 

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RELATED TOPICS: Farm Business, Inputs, Economy

 
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COMMENTS (6 Comments)

steffy
What your forgot to mention is we are exporting near record amounts of gas.This is going to keep prices high here as it keeps stocks low.The low US $ is the reason we are exporting more gas.
9:24 AM Jun 1st
 
steffy
What your forgot to mention is we are exporting near record amounts of gas.This is going to keep prices high here as it keeps stocks low.The low US $ is the reason we are exporting more gas.
9:24 AM Jun 1st
 
HoggleBoggle - Indianapolis, IN
This article talks as though there were "market conditions" that justified Crude prices of even $75/bbl, let alone $117/bbl.

There simply has been no "thriving" Economy anywhere in the World since the Big Banks & Brokerages Panic of '08 to justify prices above those of last August '10.

The last time prices skyrocketed, it was traceable to Speculation by Goldman Sachs & Morgan Stanley:
http://www.cbsnews.com/stories/2009/01/08/60minutes/main4707770.shtml

This time, Goldman Sachs is warning us that Speculation is the cause!! Have they got Religion??

"Goldman Sachs (GS) fears that speculation is causing a dangerous spike in the price of oil. In fact, the head of commodities trading at the investment bank is so worried that he advised clients this week to cash in their profits before the bubble pops, noting in a report that the sector shows “record levels of speculative longs [trading] in crude.”

This is, to put it mildly, an unusual admission from Wall Street’s preeminent casino. The official position of securities traders, hedge funds and other market players has been that speculation doesn’t affect oil prices, including prices at the pump." - CBS Business News.

6:01 PM May 31st
 
manofintegrity
According to the logic in this article, then fuel prices should drop 10 cents every year when we go back to the winter blends, right? I'm not sure that I have ever noticed that drop. Hmmm???
Also, we have seen the 40 cent increase in fuel when oil went up about $15/barrel, but now that oil has dropped over $10/barrel shouldn't we be seeing more than 10 cent drop in fuel prices? For some reason the math doesn't seem to work the same on the way down, does it? Hmmm???
3:08 PM May 31st
 
manofintegrity
According to the logic in this article, then fuel prices should drop 10 cents every year when we go back to the winter blends, right? I'm not sure that I have ever noticed that drop. Hmmm???
Also, we have seen the 40 cent increase in fuel when oil went up about $15/barrel, but now that oil has dropped over $10/barrel shouldn't we be seeing more than 10 cent drop in fuel prices? For some reason the math doesn't seem to work the same on the way down, does it? Hmmm???
3:08 PM May 31st
 
tired
Why do you want us to think gas prices below $4.00 is good?
Prices below $2 is good prices below $3 is acceptablle.
Do you work for the oil industry?
5:57 AM May 25th
 



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