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Don't Believe the Gasoline Hype

By Daniel J. Graeber | Mon, 17 December 2012 23:12 | 1

Retail gasoline prices in some U.S. markets are expected to approach the $3.00 per gallon mark by the end of the year. Declining oil prices, coupled with a series of encouraging economic figures, have helped ease prices at the pump for American drivers in time for the busy holiday season. This year saw seasonal anomalies brought on by hurricanes, refinery outages and geopolitical issues. The Christmas miracle of cheap gasoline, however, was anticipated by the U.S. Energy Department early last month, suggesting it’s no miracle at all.

Factory output in the United States remains below rates from early this year, though November figures suggest there's been a sharp increase as the east coast recovers from Hurricane Sandy. The Federal Reserve said the manufacturing sector saw its biggest gain in about a year with a 1.1 increase in November. While characterized as modest, the U.S. Labor Department said the consumer price index dropped 0.3 percent.

Gasoline prices last month fell on average by more than 7 percent, the largest decline in four years. That followed a slide of 0.6 percent that began in October. Though holiday travel may erase some gains in discretionary spending, the Labor Department said household earnings were on the rise just in time for Christmas.

Related Article: EIA Predicts Cheap Gasoline in Time for Holidays

Iran early this year threatened to shut down shipping lanes in the Strait of Hormuz in response to increased sanctions pressure. That was enough to push retail gasoline prices in the United States above the $4 per gallon mark for regular unleaded. By August, drivers in the U.S. Midwest were still paying about $3.99 per gallon because of the "cluster of bad luck" that resulted from pipeline spills in Wisconsin and refinery shutdowns in Chicago. Similar west coast issues were seen during the summer following a fire at Chevron's refinery in Richmond, Calif. Hurricane Isaac later prompted the federal government to offer relief to commuters along the southern U.S. coast and, by early November, drivers along east coast were forced to ration gasoline because of Hurricane Sandy. More than four weeks ago, as the east coast was still recovering from Sandy, the U.S. Energy Department's Energy Information Administration was already predicting that gasoline prices should fall dramatically by the end of 2012, however.

Most U.S. drivers, by the weekend, saw gasoline prices hit their lowest level in about a year. Midwest consumers, who were among those hit hardest by this year's anomalies, witnessed some of the lowest prices in the country. According to motor group AAA, Detroit drivers by Saturday paid around $3.29 for a gallon of regular unleaded, about 8 percent less than they paid in November. Sandy-battered New York City drivers, meanwhile, paid about $3.87 for a gallon of gas during the weekend, though that's 6 percent less than November. In Missouri, gasoline prices have already dropped below the $3.00 mark.

Gasoline blends released by refiners during the summer are more expensive than winter blends in part because of fewer environmental restrictions during colder months. That may account for as much as a 10 cent drop in prices at the pump. In its November report, the EIA said it expected "a continuing decline in retail gasoline prices through the end of this year." If gasoline prices for this December are at their lowest levels since last December, perhaps it's no Christmas miracle at all but a reflection of normal activity in the refinery market following a very volatile year.

By. Daniel J. Graeber of Oilprice.com

About the author

Contributor
Daniel J. Graeber
Company: Oilprice.com
Position: Senior Analyst

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  • berry on December 18 2012 said:
    I don't know where you are but today gas was 2.95 and the best was 2.92. We are in west central Ohio. Not sure how you analyze what it will be later this year. I would re-consider your method.

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