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Does The OPEC Deal Herald Higher U.S. Gasoline Prices?

Oil storage

Gasoline prices in the U.S. did not get swept up by the 10-percent rally in crude yesterday following OPEC’s decision to cut production, with the average price per gallon of unleaded essentially unmoved at US$2.16 on Thursday.

The AAA reports that this was slightly up from last Wednesday’s US$2.15, and down from the average of US$2.21 a month earlier. On November 30 2015, the average price for regular unleaded was US$2.04 a gallon.

The stability of gas prices in the U.S., however, has more to do with internal factors than one-time international events such as OPEC’s meeting.

The EIA reported yesterday that the daily production rate of refineries was 10 million barrels of gasoline (all blends), with inventories of the most popular fuel up 2.1 million barrels in the week to November 25 from the previous week.

What’s more, prices should fall further, below the US$2 mark, thanks to the seasonal decline in consumption, with the EIA expecting the January 2017 average to be US$1.97 a gallon across the States.

The decline is certainly good news for drivers, reinforced by the fact that, again according to EIA figures, inventories of all grades of gasoline continue to exceed the upper limit for this time of year, although the agency does not provide reference figures for this limit.

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UPI noted that gasoline demand is declining, determined by seasonal factors, but also that refineries are now producing winter blends that are cheaper in terms of production costs, and these lower costs are passed on to consumers.

The story is different for gasoline futures, which went up in lockstep with crude, and are now up 5.50% on the day at $1.5641. So although EIA is forecasting lower pump prices, the front month futures, which are soaring, tell a different story, and may result in a hike at the pump at some point down the road.

In terms of price volatility at the pump, the Great Lakes region is still at the top spot, with the average for Michigan at US$2.23 per gallon on Thursday. California had the highest prices, at US$2.65 on December 1.

By Irina Slav for Oilprice.com

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