Summer Gas Prices Down Despite Geopolitical Turmoil, Higher Demand

The American Automobile Association (AAA) has reported that the average pump price of a gallon of gasoline was $3.52 at the end of July, the lowest since March. In fact, July prices dropped more than they have in six previous Julys.

That’s not what analysts have been predicting. Although the U.S. Energy Information Agency (EIA) said July 24 in its weekly petroleum report that in the past two weeks, refineries took in record amounts of crude -- 16.8 million barrels per day, beating a 2005 record -- analysts say global demand also is rising, and refiners aren’t cutting the costs they charge oil companies, so they’ve been forecasting no drops in pump prices.

Summer is also when more Americans hit the road than at any other time of the year, and the increased demand for gasoline ordinarily leads directly to an increase in its retail price. Contributing to that rise is the federal mandate that refineries produce a cleaner, more expensive blend of gasoline in the summer -- a cost that’s passed on to the retail customer.

This summer also hasn’t been a quiet one for some major oil-producing countries; There’s the conflict between Russia and Ukraine, which could threaten gas supplies to Europe, and violence in northern Iraq spurred by militants of the Islamic State, formerly the Islamic State of Iraq and Syria (ISIS).

All of this would normally contribute to keeping prices high, because regardless of oil’s source, it’s fungible, so all oil prices rise or fall to a fairly uniform level worldwide. These prices did remain fairly high, but only in previous months, according to AAA spokesman Michael Green, not in July.

“Over the past month or so, we haven’t seen any situations where actual oil production or exports have been affected,” Green told The Christian Science Monitor. As a result, he said, “We expected prices … to remain flat [this summer].”

The July 31 AAA report says gasoline prices dropped by an average of 16 cents per gallon in July, compared with the same month in previous years.

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In fact, from 2011 through 2013, gasoline prices increased by the very same amount – an average of 16 cents per gallon – during July.

By. Andy Tully of Oilprice.com