Gas Prices Keep Falling Thanks to Oil Surplus

Markets are signaling that prices may continue to decline this fall.

September 15, 2014

NEW YORK – A global glut of crude oil is the main driver behind the recent, and continuing, decline in gasoline prices. Relatively cheap oil has made it more profitable for refiners to produce gasoline and other fuels, and they have ramped up production to record levels.

This boom in supplies has sent gasoline prices tumbling. And according to a recent Wall Street Journal article, traders and other market observers expect the flow of both crude oil and gasoline to keep rising, likely exerting more downward pressure on prices.

Retail gasoline prices often fall as summer vacation winds down, but the speed and size of the recent decline underscore shifts in energy markets that many analysts expect to be lasting. U.S. gasoline output climbed above 10 million barrels a day for the first time on record in late April, according to the Energy Information Administration, and held above that level in 11 of the 19 weeks since then.

Refiners are running at 93.9% of their operable capacity, the highest level since August 2005, because they can profit from relatively cheap U.S. oil. The per-barrel price of U.S. oil is about $5 less than the global Brent benchmark, because new technologies to access supplies trapped in shale-oil fields have boosted U.S. crude output to the highest level in decades.

The price gap allows refiners to sell petroleum products abroad at lower prices than their competitors outside the United States. Also, the type of crude oil produced from shale-oil fields yields more gasoline in the refining process than other types of oil.

To be sure, tensions in the Middle East could cause oil prices to spike as they did in June when Islamist militants swept through northern Iraq. On Wednesday, President Barack Obama authorized airstrikes in Syria and expanded a bombing campaign in Iraq. Higher oil prices could discourage refiners from producing as much gasoline, which would constrain fuel supplies and support prices, some analysts said.

The article goes on to say that other unforeseeable events, such as a hurricane or refinery disruption, could send gasoline prices higher, as could strong global oil-product demand.

For more information, take a look at the 2014 NACS Retail Fuels Report and related materials. 

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