U.S. retail gasoline prices should drop below the July average by 2013 amid depressed consumer demand and continuing declines in crude oil prices. U.S. lawmakers were in panic mode when the average price of gasoline hovered at around $4 per gallon in April. While relatively low compared with European markets, U.S. consumer sentiment historically turns negative when retail gasoline prices pass the $4 per gallon threshold. By next year, however, it's likely the prices at the pump will be below the current average of $3.41 per gallon, the U.S. Energy Department said.
In early January, some analysts had predicted retail gasoline prices would hit the $5 per gallon mark in the United States. Prices continued a steady climb toward $4 per gallon by April, causing some lawmakers to consider the possibility of tapping into strategic petroleum reserves to allay consumer concerns. By February, a former chief executive at Shell Oil warned there was a "better than 50 percent chance" gasoline prices would continue their march above $4 per gallon.
The U.S. Energy Department, in its short-term monthly outlook, projected that world oil demand would peak for the year during the third quarter of 2012. The department's Energy Information Administration attributed the expected seasonal peak to the U.S. summer driving season and a surge in electricity demand for countries in the Middle East. By then, the EIA said, oil consumption should exceed production by around 700,000 barrels per day. Nevertheless, the administration said the impact would be far less than in previous years. Last year, third-quarter consumption outpaced oil supplies by 1.8 million bpd.
One year ago this week, the average price for a gallon of regular unleaded gasoline was $3.60, about 5 percent lower than the average price reported by the EIA for the second week in July 2012. In terms of oil prices, the EIA said prices for West Texas Intermediate crude, the benchmark for New York Mercantile Exchange's oil futures contracts, stood at around $98 per barrel for October delivery. For this year, the EIA said WTI for October delivery during the five-day period ending July 5 stood at $85 per barrel.
The increase in retail gasoline prices in 2012 mirrored trends in 2005 when retail prices climbed nearly every week from January to April, increasing 50 cents per gallon and adding another $7.8 billion to total consumer gasoline bills that year. The more consumers are forced to spend on gasoline, the less money they have for other purchases and expenses. Taxes, refining costs, distribution and, most significantly, crude oil prices determine consumer prices at the pump. The EIA's estimates on WTI, in general, should correspond to prices at the pump. The EIA said better fuel efficiency and depressed consumer demand should factor into retail gasoline prices. Coupled with an expected increase in domestic crude oil production, U.S. retail gasoline prices should top out at around $3.50 this year before settling at $3.28 in 2013. Should forecasters anticipate a move toward $5 during the first quarter of 2013, historic trends as reported by the EIA should override those predictions.
By. Daniel Graeber of Oilprice.com
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