Gas pump
By Micheline Maynard
You’ve probably noticed that the price of unleaded gasoline has inched up over the past few weeks. That’s typical gas price behavior as Memorial Day approaches, and motorists set off on summer vacations.
The good news, according to a Purdue University researcher, is that gas prices this summer ought to be significantly lower than they were in summer, 2014.
Purdue energy economist Wally Tyner is predicting that gas prices will remain below $3 a gallon for unleaded, except in California and Hawaii where prices are normally higher than in the rest of the country.
The average price of unleaded fuel last week was $2.71 a gallon, according to AAA. Although the price has gone up steadily the past month, it’s still 94 cents a gallon cheaper than at this time a year ago.
One reason Purdue’s Tyner expects prices to stay below $3 is that there is plenty of crude oil supply available. Tyner pegs the current level at 485 million barrels, compared with a normal level of about 350 million barrels.
U.S. energy production actually has fallen lately, for the first time in two years, in part because the price is trending between $50 and $60 a barrel. When the price is higher, energy companies are more likely to invest in production, but this price range is holding off some new investment, he says.
Of course, there can always been an unexpected development that sends prices higher regionally, such as the ruptured pipeline off Santa Barbara, California . Tyner notes there is political instability in oil producing countries such as Libya, Iraq, Venezuela and Nigeria.
And, it’s important to keep an eye on any nuclear deal involving Iran. That might lift U.S. sanctions, and send Iranian oil flowing back onto the world market. He sees the potential for as much as a 30 cent drop in gasoline prices by 2016, should Iranian oil become widely available.
Tom Kloza, head global analyst at Oil Price Information Service, believes gasoline prices will level off around $2.50 this summer, before dropping to $2 to $2.25 by fall. Kloza told CNBC that Memorial Day weekend is a dress rehearsal for gasoline demand in July and August.
“If you look at gasoline futures, there’s a drop of about 30 cents that’s perceived between now and December, but I think it will go down more than that,” he said.
According to AAA, the majority of Americans don’t feel gasoline is a bargain at the current prices. They believe gas prices start to be cheap between $1.50 and $2.00 per gallon. The national average price of gas in January fell to a low of $2.03 per gallon.
Interestingly, only 13 percent of Americans told AAA that they are driving more because of lower gasoline prices. Once gasoline hits $3 a gallon, half of Americans believe the price is too high, AAA reported.
Originally published here.