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For American motorists the news is good: The price of gasoline during the coming summer driving season will remain at its lowest since 2009.
For oil companies, the news is bad: The price of gasoline during the coming summer driving season will remain at its lowest since 2009.
That echo comes from the US Energy Information Administration’s (EIA) latest Short-term Energy Outlook, issued April 7, which estimated that the average price for regular gasoline nationwide would be $2.45 per gallon from April through September. That's 32 percent lower than $3.59 per gallon, the average price during the same period in 2014.
As a result, the EIA said, the typical US household will spend about $700 less fueling their cars, pickup trucks and SUVs this year than last, while at the same time increasing their fuel consumption by 1.6 percent. Further, it said, annual spending on gasoline in the United States is expected to fall to its lowest level in 11 years.
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Seven hundred extra dollars in a consumer’s pocket could mean many things – including an incentive to grow one’s savings – but the prevailing wisdom is that the consumer will consume, driving to vacation destinations and using at least some of that extra cash for summer entertainment and accommodation. This is particularly true for lower-income Americans, who spend more of their incomes on energy.
“Gasoline consumption this summer is expected to be up 2 percent from last year to the highest level in five years as higher employment and lower pump prices encourage more driving,” said Adam Sieminski, head of the EIA, a division of the US Department of Energy.
The EIA outlook expects that the average price of West Texas Intermediate (WTI) crude to be $52.48 per barrel this year, down from the average of $93.26 per barrel in 2014. For Brent crude, the current estimate is $59.32 per barrel, down from $99 per barrel last year. The forecast for next year is $70 per barrel for WTI and $75.03 per barrel for Brent.
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Meanwhile, 2015 oil production in the United States is expected to decline from 9.37 million barrels of crude per day in April and May to 9.33 million barrels per day in June, the EIA said. Production will reach a low of 9.04 million barrels a day in September, according to the forecast, then begin to rise once again. From there it will soar from 9.17 million barrels a day in January 2016 to 9.68 million barrels a day by year’s end.
The drop in oil prices began with a glut created by aggressive US crude production and a demand lull in Asia. OPEC, led by Saudi Arabia, caused prices to drop further at its meeting in November by refusing to cut production in order to shore up prices. Saudi Oil Minister Ali al-Naimi later said his strategy was to limit US oil production and reclaim OPEC’s market share.
Iran could contribute to a further depression in oil prices: It has agreed in principal to restrictions on its nuclear program in exchange for a phased lifting of international sanctions imposed on it. If that comes to pass, the IEA report said, Tehran could ramp up oil exports and prices could drop even further in 2016, by between $5 and $15 per barrel.
“A lifting of sanctions against Iran could significantly change the forecast for oil supply, demand and prices by allowing a significantly increased volume of Iranian barrels to enter the market,” Sieminski told The New York Times.
By Andy Tully Of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com