Oil plunges in surprise as gasoline prices drop
Experts’ predictions of $3 per gallon fail to materialize
Suddenly, summer vacation is a little easier on the pocketbook.
American drivers are poised to reap unexpected savings at the gas pump after oil prices kicked into reverse.
Oil plunged Wednesday after a report indicated supply was outpacing demand, setting the stage for lower-than-expected fuel prices.
The price of West Texas Intermediate crude, considered the U.S. benchmark, fell 5%, or $2.47 a barrel, to $45.72.
“This is a big surprise, and it’s a huge win for motorists hitting the road this summer,” said Patrick DeHaan, GasBuddy.com analyst.
The price of gasoline was $2.36 a gallon Wednesday, according to GasBuddy. That’s equal to the price a year ago and down 2.3 cents from a week ago.
Gas prices are defying predictions from the beginning of the year, when some experts thought they would close in on $3 during the summer travel season.
The gap between today’s prices and the $3 level is worth nearly $10 on a 15-gallon fill-up.
Oil’s sharp decline followed an Energy Information Ad-
ministration report that U.S. crude oil inventories ballooned by 3.3 million barrels in the week ended June 2.
The EIA report, released Wednesday morning, indicated U.S. energy producers continued to pump oil at a steady rate to make up for reduced production among the Organization of the Petroleum Exporting Countries.
OPEC announced in May it would extend its current cap on oil output through March 2018, giving U.S. energy producers confidence they could profit by boosting production to snap up market share.
Fueled by a boom in shale oil production, U.S. energy companies are bedeviling the oil-cartel that once exerted significant control over the world’s petroleum supply.
In fact, EIA projected that U.S. oil production would hit an alltime record of 10 million barrels per day in 2018, topping the previous mark of 9.6 million set in 1970.
“Increased drilling activity in U.S. tight oil basins, especially those located in Texas, is the main contributor to oil production growth, as the total number of active rigs drilling for oil in the United States has more than doubled over the past 12 months,” EIA acting administrator Howard Gruenspecht said in a statement.
Still, this particular week’s increase in inventories was tied primarily to a rise in imported oil and lower-than-expected demand for gasoline.
Altogether, analysts had expected a 3.5 million-barrel decrease in inventories, Capital Economics analyst Thomas Pugh said in a research note.
“However, we think these are likely to be temporary blips and expect stocks (of oil) to resume falling over the rest of the summer,” Pugh said.
For now, however, the government report was welcome news for travelers.