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Jen Alic

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2013: Cheapest Gas in 4 Years?

Prices at the US pump are on the rise again for the first time since October, but the good news is—according to analysts—this year should see overall lower gas prices than 2012 thanks to strong oil supplies against weakening US demand.

What they mean, essentially, is that 2013 won’t see the same drastic swings in prices that had frustrated US drivers throughout 2012. The lows with be higher and the highs will be lower.

But this positive news is likely to fall on deaf ears. Consumers are generally concerned with the immediate rather than the overall—and the immediate future is a bit bleaker.

Gas prices fell from October through December, but January has seen them rise again, with the price of a gallon of regular gas at an average of about $3.32, or 6 cents higher than it was three weeks ago. This, after prices dropped about 58 cents a gallon between October and December.

Related Article: Oil Sands Crude Crashes Through $60 a Barrel

But let’s look at the overall, even if the consumer is not impressed. If gas prices do indeed turn out to be lower in 2013—for example, the average price would fall 5 percent (to $3.44)--it would be the first time in four years.

This price is still high. In fact, it’s the third-highest price for gasoline in US history, but the past four years have been rough ones at the pump and this forecast would mean a savings of 19 cents per gallon on average. The economists then translate this into $25 billion in savings that consumers would spend elsewhere. It’s not a lot—just over $200 in savings per household—but it adds up.

What is the basis of this forecast? Simple US supply and demand. The reasoning is that this year global demand is expected to rise a bit, but this will be offset by increased production in the US, which will keep supplies sufficient. Next year, production is expected to grow by 900,000 barrels per day—which would be the highest annual increase ever.

Simultaneously, US gas consumption has declined thanks to more fuel-efficient cars and a lukewarm economy. And that consumption is not forecast to rise in 2013 (or even in 2014). If consumption remains at its current level (or lower), the US will import less oil, global supplies will be higher and prices will be kept down.

Related Article: What Would Falling Oil Prices do to Russia's Geopolitical Ambitions?

What’s not included in this forecast? A handful of unpredictable variables, including tensions in the Middle East (the obvious ones being the outcome in Syria and the brewing conflict between Iraq’s central government and the Iraqi Kurds). Also not considered in the forecast is Mother Nature, who occasionally likes to disrupt supplies by taking refineries offline and rigs out of operation.

These variables aside, analysts are sticking to their forecast that gas prices won’t go higher than $3.80 a gallon for all of 2013, and that they could even drop as low as $3.20 a gallon at times.

Specifically, AAA forecasts the national average for the spring to be between $3.60 and $3.80 and for mid-summer between $3.20 and $3.40 by mid-summer. Later in the year—hurricane season on the Gulf Coast—is forecast to see a slight rise, before another decline near the year’s end.

By. Jen Alic of Oilprice.com




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Leave a comment
  • David B. Benson on January 14 2013 said:
    Right now its US$3.199 here.
  • roger on January 23 2013 said:
    Great timing. Gas went up ten cents today.

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