Pump prices likely to drop fur­ther

A U.S. agency pre­dicts gaso­line will be the cheap­est it’s been in six years this sum­mer.

Los Angeles Times - - BUSINESS - By Tif­fany Hsu

An on­go­ing glut of crude oil will give U.S. driv­ers this sum­mer the low­est sea­sonal gaso­line prices in six years, the gov­ern­ment pre­dicts.

Even in Cal­i­for­nia — where prices re­cently surged a dollar above the na­tional av­er­age, spark­ing ac­cu­sa­tions of col­lu­sion by oil re­finer­ies — an­a­lysts ex­pect gaso­line to be the cheap­est it’s been in years.

Bar­ring a nat­u­ral dis­as­ter or other ma­jor sup­ply dis­rup­tions, prices in the state will con­tinue to fall, said an­a­lyst Al­li­son Mac of the fuel-track­ing firm Gas­Buddy.

“We may have al­ready peaked in Los An­ge­les,” she said. “We’re on pace to have one of the low­est-priced sum­mer driv­ing sea­sons in a while.”

Na­tion­ally, be­tween April and Septem­ber — his­tor­i­cally, the busiest driv­ing sea­son — gaso­line will cost an av­er­age of $2.45 for a regular gal­lon at re­tail, ac­cord­ing to a Tues­day fore­cast from the U.S. En­ergy Depart­ment.

The price, the low­est since 2009, is nearly a third less than the $3.59-a-gal­lon price dur­ing the same pe­riod a year ear­lier, ac­cord­ing to the agency’s En­ergy In­for­ma­tion Ad­min­is­tra­tion.

Trav­el­ers buoyed by a strength­en­ing em­ploy­ment mar­ket and im­prov­ing in­comes will use 1.6% more gaso­line this sum­mer, ac­cord­ing to the agency. But their fuel spend­ing will be the low­est since 2004.

“It will cause peo­ple who are buy­ing a new car to maybe change their minds about how fuel-ef­fi­cient their ve­hi­cle has to be,” said David Hack­ett, pres­i­dent of trans­porta­tion en­ergy con­sult­ing firm Still­wa­ter As­so­ciates in Irvine. “They’ll think, ‘I can buy my­self an F-150 truck.’ ”

In large part, the decline re­flects a sup­ply that over­whelms de­mand. Last year, the U.S. was the top pro­ducer of petroleum in the world.

The sur­plus will cause the price of bench­mark Brent crude oil to plunge 46% this sum­mer to an av­er­age of $58

a bar­rel from $107 a bar­rel last sum­mer, the en­ergy agency pre­dicts. In 2016, prices are ex­pected to rise but only mod­er­ately.

Gaso­line prices na­tion­wide slumped for months af­ter oil prices tanked last sum­mer. They climbed slowly ear­lier this year and then reversed course last month. On Tues­day, the av­er­age price of a gal­lon of regular gas was $2.38 na­tion­wide, down al­most 8 cents from a month ear­lier and $1.20 less than the same day last year, ac­cord­ing to Gas­Buddy.

If cur­rent ne­go­ti­a­tions re­sult in oil-re­lated sanc­tions against Iran be­ing lifted, the gov­ern­ment be­lieves that prices could fall even fur­ther. Iran has at least 30 mil­lion bar­rels in stor­age and can quickly ramp up pro­duc­tion, ac­cord­ing to the en­ergy agency.

In­creased im­ports and do­mes­tic re­fin­ery pro­duc­tion could also boost sup­ply.

In Cal­i­for­nia, a Martinez re­fin­ery idled by Te­soro Corp. in Fe­bru­ary in re­sponse to a na­tion­wide worker strike is back on­line. Exxon Mo­bil Corp. said it is work­ing to re­sume full pro­duc­tion at its Tor­rance re­fin­ery, which was rocked by an ex­plo­sion in its pol­lu­tion-con­trol­ling equip­ment in Fe­bru­ary.

The two events pushed prices in Cal­i­for­nia a dollar a gal­lon higher than in the rest of the coun­try in Fe­bru­ary. Con­sumer ad­vo­cates ac­cused re­finer­ies of ma­nip­u­lat­ing gaso­line prices to pad their prof­its. State sen­a­tors called an ul­ti­mately in­con­clu­sive joint com­mit­tee hear­ing to dis­cuss the al­le­ga­tions.

A com­bi­na­tion of en­vi­ron­men­tal reg­u­la­tions, a new cap-and-trade rule, taxes and fees keep re­tail gaso­line prices in the state reg­u­larly 30 cents to 40 cents higher than the na­tion­wide av­er­age. Be­fore the re­fin­ery ex­plo­sion and strike, Cal­i­for­nia gas prices had fol­lowed the na­tional trend of de­creases.

The av­er­age $3.15 price in Cal­i­for­nia as of Tues­day was 30 cents lower than a month ago and 89 cents cheaper than at the same time in 2014. In Los An­ge­les, the $3.19 price had fallen 34 cents from March and nearly a dollar from the prior-year date, ac­cord­ing to Gas­Buddy.

Mac of Gas­Buddy es­ti­mates that the av­er­age gaso­line price in Los An­ge­les could drop be­low $3 in early May and hover be­tween $2.80 and $3.10 from May through Au­gust.

Prices along the West Coast are higher than in other re­gions of the coun­try but are ex­pected to fol­low the na­tion­wide pat­tern by fall­ing 28% from an av­er­age of $3.93 a gal­lon last sum­mer to $2.82 a gal­lon this sum­mer, ac­cord­ing to the gov­ern­ment.

Still­wa­ter’s Hack­ett said the Fe­bru­ary price surge in Cal­i­for­nia was mostly the re­sult of “some mar­ket over­re­ac­tion” to the Tor­rance re­fin­ery blast.

“Prices went up higher than I thought they would, but com­pe­ti­tion is bring­ing them back down,” he said. “If crude oil prices stay where they are, and there aren’t any more goofy re­fin­ery prob­lems, re­tail prices in South­ern Cal­i­for­nia will con­tinue to decline.”

Justin Sul­li­van Getty Images

GAS PRICES are posted at a Valero sta­tion in San Rafael, Calif., in Fe­bru­ary, be­fore prob­lems at two re­finer­ies in the state sent prices soar­ing.

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