Drivers who have seen a steady rise in the price of gasoline can relax: They will almost certainly be paying far less for gas this summer than they have in at least six years.
“It’s a cheap, cheap, cheap year,” says Tom Kloza, chief oil analyst at the Oil Price Information Service.
The Energy Department said Tuesday that it expects the price of gasoline to average $2.55 between April and September, which would be the lowest since 2009. Over the course of the year, a typical U.S household could save $675 in gasoline prices compared to last year.
The coming summer of cheap gas was set up by a collapse in oil prices that began last June at $107 a barrel and ended in mid-March at $43. That took gasoline prices down to $2.03 a gallon, a level the nation hadn’t seen since it was deep in recession in March of 2009.
Since then, the price of crude has risen nearly $20 a barrel to around $60, propelled by evidence in recent weeks that drillers in the U.S. and around the world have sharply cut back on new projects while demand for fuels has increased.
The rise in oil pushed gasoline prices higher, along with typical seasonal factors such as refinery maintenance and the switch from winter to summer gasoline to meet clean-air rules. The national average price of gasoline reached $2.66 per gallon, where it has held steady in recent days. The price is 99 cents less than last year at this time, according to AAA, OPIS and Wright Express.
But many believe the surge in both oil and gasoline prices is near an end. Supplies of crude oil remain extremely high, and drillers who have been waiting on the sidelines for higher prices are ready to start producing more oil again.
“The rebound over the last few months could simply encourage US firms to restart production, while undermining any pick-up in demand,” wrote Julian Jessop, head of commodities research at Capital Economics, in a recent report. “We think that prices are now more likely to fall than to rise over the remainder of the year.”
William Thomas, CEO of EOG Resources, one of the country’s biggest shale drillers, told investors in a recent call that he expects drilling activity to pick up if oil prices stabilize near $65 a barrel or more. Continental Resources CEO Harold Hamm told investors last week that his company would start sending more rigs out to the field if oil gets near $70 a barrel.
At the same time, refiners are making strong profits because their cost to buy crude is low compared with the prices they are getting for fuels. In an effort to capture those profits, they have cranked up their refineries, which is boosting supplies of gasoline on the market.
“They are clearly motivated to run as high and hard as they can,” Kloza says of U.S. refiners.
Kloza says gas should be cheaper on Father’s Day than it was on Mother’s Day, and he thinks that the national average price will stay in a range of $2.45 to $2.60 a gallon throughout the summer. That’s about $1 to $1.10 cheaper per gallon than last year.
The one big exception is California, which is suffering the highest gasoline prices in the country by a large margin. California drivers are paying an average of $3.73, higher even than Hawaii and Alaska, which typically pay the nation’s highest average price. An explosion at an ExxonMobil refinery in southern California in February has reduced supplies throughout the state, and California has special gasoline requirements so it can’t easily replenish its stockpile with supplies from elsewhere.
Meanwhile, Southeast states such as Missouri, South Carolina and others that usually enjoy the lowest prices in the country could see average prices under $2.
Last week, AAA forecast that low gas prices and an improved job market will inspire more than 37 million Americans to travel for Memorial Day, the highest total in 10 years.
The biggest threat to low gasoline prices this summer and fall is, as always, a hurricane that forces the refineries along the U.S. Gulf Coast to slow or shut production. Forecasters expect this hurricane season to be less active than usual, but one tropical storm has already formed nearly three weeks before the official start of the season. Gasoline prices remain vulnerable to hurricanes because of the huge concentration of refineries along the Gulf Coast.