Gas prices dip to 7-year low
Experts split on future of California prices
Local drivers were feeling a little less pain at the pumps on Thursday.
The average price of regular unleaded gasoline in the Visalia-tulare-porterville area dipped to $2.33 a gallon, according to the American Automobile Association, more than 20 cents below the state average.
The cost of gas for the day was seven cents cheaper than the previous week and down from $2.61 cents one month ago.
In Porterville, 10 gas stations posted prices below $2 a gallon as of 4 p.m., according to gasbuddy.com, a website that tracks gas prices nationwide.
“I’m glad that they’re lower,” said Cheryl Williams, as she watched her van fill up with gas at the Arco AM/PM off South Jaye Street and Highway 190 on Thursday morning.
Williams said she was driving more because of the cheaper prices.
“I’m happy,” she said. “It’s been a long, long time since prices were this low.”
Marie Montgomery, spokesperson for the Automobile Club of Southern California, said the average price for the area was the lowest in seven years.
“The last time (prices) were $2.33 a gallon it was 2009, so that’s very good news,” she said.
Montgomery expressed doubt that the plummeting prices would continue, however.
“I don’t think they’re going to hold very long unfortunately,” she said. “We’re in a turn-around season. I’ve never seen a spring where prices didn’t go up substantially between March and May.”
Montgomery attributed the typically annual increase to refineries switching their gasoline formulas from their winter to summer blends.
“One example is butane, like lighter fluid, that’s a component in winter months,” said Gordon Schremp, senior fuel specialist at the California Energy Commission. “It’s a less expensive component, but in the summer they can’t use it. If they did, the formula blend they make would be too high in vapor.”
That, Schremp explained, would create more problems for Californians than just extra smog choking its valleys and cities.
“In warm weather, if
you were to use the winter blend, it would evaporate too quickly in carbureted engines,” he said. “You would get vapor lock.”
Schremp said he believed the low cost of crude oil would likely keep gas prices down in California for at least a year.
“Crude [oil] is certainly the biggest factor affecting price of fuel but they’ve dropped about 55 to 70 percent since summer of 2014,” he said. “So, that’s a significant drop.”
There’s plenty of crude available globally, Schremp said, partially due to a United States rebound or “renaissance,” that increased crude oil production by over 4 million barrels a day.
“That production has started to show signs or effects of price declines and cheaper oil prices, though” he said. “You don’t really want to go out and drill as much [as] in the past in the Dakotas and West Texas.”
Schremp likened drilling oil from a field to letting air out of a balloon.
“If the pressure goes down, you don’t produce as much, so you have to keep drilling more wells,”
he said.
And since Saudi Arabia’s apparent strategy has been to flood the world market with around 10 million barrels of crude oil a day, it has created a glut — or surplus — resulting in a worldwide price drop that has greatly affected the typically more expensive American oil.
“They want U.S. production to drop about a million [barrels],” Schremp said.
At the moment, U.S. production is down about half that, in a process Schremp described as “gradual.”
“There’s still about 1.5 million to 2 million more [barrels of] crude produced than meets demand,” he said. “That’s more inventory worldwide and for the U.S.”
It’s a situation that has many experts believing the worldwide surplus isn’t going away soon because the U.S. drop in production has been more gradual than precipitous.
Plus, Schremp pointed out, the recent lifting of Iranian sanctions could eventually add an additional 500,000 barrels of crude per day to the world market.
“There’s a glut,” Schremp said. “The big question is when does the glut stop and upper pressure on crude oil prices begins.”
The demand, he said, has simply not been responding globally to make up for the increase in supplies.
“China’s economy is cooling, Russia is in a recession because of sanctions, there’s problems in South America and South East Asia,” he said. “Maybe in 2016-2017 we will start to see excess supply go down again, but until then, don’t expect prices to rise in California because of oil for at least a year.”
The only way Schremp could see a considerable rise in gas prices for the state would be due to the refineries, citing Exxon Mobil Corp. scaling back its operation in Torrance following an explosion last February, as a prime example.
“It would have to take some significant production problems at the refineries,” he said. “Hopefully, this year we only see planned maintenance and nothing unplanned like Exxon.”