Gas prices this summer won't be as high as feared

The Kansas City StarMay 14, 2012 

Gasoline for your summer vacation isn’t going to be cheap, but it’s unlikely to be as expensive as once feared.

Average gas prices a month ago were $3.63 on the Missouri side of the Kansas City area and a few cents higher on the Kansas side, and they appeared poised to set a new record.

Instead, they’ve declined 30 cents a gallon since then, and the question now is whether they will decline further. The idea of gas prices going beyond $4 a gallon and setting a record is fading fast.

“The high of the season and the year has been set unless there is a geopolitical event, which no one can forecast,” said Lewis Adam, president of Admo Energy, which helps retailers purchase fuel.

He added that gas prices could take another dip, in part because supplies of petroleum are ample. U.S. oil inventories haven’t been as high as they are now for more than a decade.

The federal Energy Information Administration last week said the national average for gas prices, typically higher than in the Kansas City region, will be $3.79 through September, a decline of 16 cents from last month’s forecast.

If that turns out to be the case, gas prices will be slightly more than the average of $3.71 paid last summer.

The recent fall in gas prices has been fueled by a decline in oil prices of about $14 a barrel in the last several weeks. The effect on retail prices nationwide would have been greater if refineries hadn’t increased their margins this month about 18 cents a gallon. The margin is the difference between the cost of crude oil and wholesale gas prices.

The relatively rosy outlook for gas prices could change quickly if there is a serious disruption in supplies. Earlier this year, talk of an Israeli attack on Iran’s nuclear facilities unnerved oil markets. In response, Iran could try to close the Strait of Hormuz, a major shipping channel for oil. About 20 percent of the oil needed to meet world demand travels through the passage.

Negotiations with Iran to settle the issue are considered sufficiently promising to reduce the risk premium in oil prices.

“The Iranians seem to be making nice,” said Jim Williams, an energy analyst.

The shift in sentiment about gas prices has also been helped by boosts in oil production by Kuwait and Saudi Arabia, along with an increase by Iraq and a return to nearly normal production by Libya. The continuing soft U.S. economy, a more dire outlook for Europe and questions about China’s economy have also fed the decline.

There was also an interesting sign of the resurgence of the U.S. energy industry. In a recent report, the Energy Information Administration said that a monthly boost in the country’s oil production of up to 200,000 barrels per day had helped create a 500,000-barrel world surplus.

“That’s not a small thing,” Williams said.

For consumers, the recent decline in gas prices means some extra dollars to save or spend on other things. In the Kansas City area for an average family with two cars, it amounts to about $35 a month.

Mike Right, a spokesman for AAA, said the group was already expecting a modest improvement in travel this summer as families seem less anxious about spending their disposable income.

“One thing for sure is that gas isn’t going to be as expensive as some thought it would,” he said, referring to some predictions that called for gas prices to top $5 a gallon.

Diesel prices have declined far less than gasoline prices, in part because more diesel is being exported, keeping supplies tighter here. But diesel prices are still down about 10 cents a gallon, which adds up when you consider a typical over-the-road trucker uses 20,000 gallons of fuel a year. The savings amount to nearly $200 a month.

“That’s a significant chunk of change,” said Todd Spencer, an executive vice president for the Owner-Operator Independent Drivers Association.

Meanwhile, signs are growing that the U.S. is making progress in becoming more energy independent. Consumers are driving more efficient vehicles, and companies are producing more oil and other liquids such as ethanol to meet domestic demand.

In 2008, net imports of oil and petroleum products reached 59 percent of U.S. demand. This year they are down to 42 percent.

Four years ago, the country was sending $44 billion a month to other countries for oil. In March, the most recent month the figures are available, it was $26 billion, according to WTRG Economics.

Jay Hakes, the former head of the Energy Information Administration and author of a 2008 book on achieving energy independence, said the United States is beginning to have a positive effect on the world petroleum situation. The U.S. is on the right track, he said, and has made more progress than he expected when he wrote the book.

Producing more oil, ethanol and natural gas liquids while at the same time using less in part because of fuel-efficiency standards for cars and trucks is starting to pay off.

“We’re making spectacular progress,” he said. “All the trend lines are good.”

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