HOUSTON – Gasoline pump prices are poised to drop to the lowest since February 2011 by New Year’s Eve as supplies increase more than demand, providing a lift for consumers in an economy struggling to recover from the deepest recession since the 1930s.
Retail prices will probably sink to an average $3.15 a gallon by Dec. 31 from $3.34, said Michael Green, a spokesman in Washington for AAA, the nation’s largest motoring organization. The highest seasonal inventories in three years are set to rise as plants return from scheduled maintenance. Refining capacity in the fourth quarter will be 410,000 barrels a day higher than last year while demand climbs 10,000 barrels, the Energy Information Administration estimated Oct. 8.
In the Buffalo Niagara region, the average price of a gallon of regular was 31 cents above the national average, at $3.65, Wednesday. If that price gap were to remain, the average local price may fall to $3.46 or lower by the end of the year.
U.S. refiners are making the most gasoline ever for this time of year, having expanded to take advantage of ample domestic and Canadian crude. U.S. oil production grew in September to the highest level since May 1989 as advances in drilling techniques boosted output from shale formations. The U.S. met 87 percent of its own energy needs in the first six months of 2013, on pace to be the highest annual rate since 1986.
“We’re in a longer-term downtrend with retail gasoline prices because of reduced demand, increasing U.S. production of oil as well as increased refining capacity for gasoline,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, said in a telephone interview.
Retail prices have fallen 25 cents since the end of August, as the 2013 Atlantic hurricane season was shaping up to be the first in almost two decades without a major storm disrupting Gulf Coast production. The season runs from June 1 to Nov. 30.
As plants return from seasonal work, production should increase. In the past five years, refinery runs have climbed an average 303,000 barrels a day in the fourth quarter as seasonal repairs ended.
The U.S. was awash in gasoline even as refiners shut units for maintenance. Inventories were 217.3 million barrels as of Oct. 11, the most for this time of year since 2010, EIA data shows.
Production of the fuel in the week ended Oct. 11 increased to 9.34 million barrels a day, 3.2 percent higher than a year earlier and the most for this time of year in EIA data going back to 1982. There was enough gasoline in the U.S. to cover 24.6 days of supply, 6.8 percent above the five-year average.
“There’s a surplus of gasoline,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York. “Refinery runs are going to go up when the maintenance season ends and we’re going to produce more gasoline than we need.”
The drop in gasoline prices is bringing relief to consumers just as the nation emerges from a government shutdown, the labor market expanded slower than projected in September and existing home sales fell for the first time in three months. “Lower prices put more money in consumers’ pockets to spend on things other than fuel,” said Andy Lipow, president of Lipow Oil Associates in Houston.
Retail prices are 32.1 cents below a year ago, data from Heathrow, Fla.-based AAA show. The last time the national average dipped below $3 a gallon was Dec. 21, 2010.