Expert Insight: An Autumn of Gas Prices Below $3?

Other shoe drops Sept. 15 in annual pump-price decline

Published in CSP Daily News

By  Tom Kloza, Chief oil analyst

WALL, N.J. -- U.S. pump prices this Labor Day weekend will as cheap as they have been since 2010, when we were in the middle innings of recovery from the Great Recession. GasBuddy forecasts that Americans will have about $300 million more in disposable income in the next seven days when compared to 2013 and perhaps $1 billion in extra spending money when measured against 2012. (The figures represent weekly savings.)

What’s more, the country will soon be entering a period that traditionally brings one of the most noticeable ebb tides in fuel costs. In 2008, gasoline prices plunged by $1.55 per gallon from Labor Day through Nov. 15, although that swoon was accentuated by the banking crisis. When data for the last three years is crunched, it reveals an average gasoline price drop in this ebb-tide period of 34.5 cents per gallon, including a 40-cent slide last year.

So are U.S. motor-fuel prices on the verge of slipping to the lowest levels in three years? The likely answer is “not yet.”

There are two major drivers of lower autumn prices. One arrived a bit earlier than normal this year in the form of a substantial cut in crude-oil prices. The global price for crude has plunged from above $115 per barrel after the fall of the Iraqi city of Mosul to just over $102 barrel this week. The cost of U.S. domestic crude has dropped by $7 barrel to as much as $10 per barrel as U.S. production has surged to its highest level since the N.Y. Mets won the World Series in October 1986.

The second major driver has yet to arrive. On Sept. 15, the recipe for gasoline in all Lower 48 states but California changes. Some cheaper components of gasoline can be used to manufacture more volatile gasoline. Vapor pressure can create all sorts of air-quality problems in the summer, but it can hasten better performance once more moderate temperatures arrive. High vapor pressure components like butane sell for less than half the value of wholesale gasoline, and refiners and blenders can use these cheap hydrocarbons after mid-September.

Combine the easier-to-manufacture recipe with typical early autumn demand declines of about 18-million gallons below driving season, and you have the template for a strong ebb tide in pump prices.

GasBuddy is projecting that average U.S. prices will bottom in the $3.15- to $3.25-per-gallon range this autumn, with the low likely to occur between Election Day (early November) and Christmas. But the popular gas-price app also predicts that “hundreds of stations at or below $3 per gallon” will give way to thousands of pricing points well below average numbers. Ten states find at least some gasoline offerings below $3 per gallon currently, and GasBuddy believes more than half of U.S. states will have competitive offers that low two months from now.

But marketers and consumers probably shouldn’t get used to those numbers. It is not a particularly challenging task for Saudi Arabia to “defend” a $100-per-barrel world oil price, and the pace of demand growth in emerging economies is likely to increase.


National Gasoline Price Trends Going Into Fall

So for in August, U.S. gasoline prices have averaged $3.458 per gallon, 10 cents lower than at the same time last year and 13 cents lower than the July 2014 average of $3.590.

OPIS/GasBuddy data below retailers and consumers can expect continued price declines of about 34.5 cents per gallon between now and November.

TIME FRAMEAVG. PUMP PRICE
Labor Day Weekend  
Aug. 31 to Sept. 2, 2013$3.588/gal
Sept. 1 to Sept. 3, 2012$3.831/gal
Sept. 3 to Sept. 5, 2011$3.663/gal
Sept. 4 to Sept. 6, 2010$2.672/gal
  
Difference by Veteran's Day 
Nov. 11, 2013$3.207/gal. (down 38.1 cents)
Nov. 11, 2012$3.438/gal. (down 39.3 cents)
Nov. 11, 2011$3.438/gal. (down 22.5 cents)
Nov. 11, 2010$2.859/gal. (up 18.7 cents)