Surge In U.S. Oil Production Finally Reflected At Pump

Geopolitical turmoil, particularly in oil-producing regions, usually means higher retail costs for petroleum products, specifically gasoline.

Not so this year. Oil analysts say American drivers taking their last summer road trips cars will enjoy the lowest pump prices this Labor Day weekend than they have in four years. That's despite ongoing conflicts in Iraq, Libya, Syria, and between Russia and Ukraine.

Even word of unexpectedly low oil supplies hasn't kept the price of gasoline from falling. On Aug. 27, the U.S. Energy Information Administration (EIA) reported that crude oil stockpiles fell to 360.5 million barrels last week, the lowest levels since January.

Part of the reason for the price drop is production. Despite attacks in Iraq by the Islamic State, the oil keeps flowing. The same is true in Libya. And the conflict between Ukraine and Russia threatens gas, not oil.

Price have been easing downward for the past month, according to GasBuddy.com, a price-tracking website. It reports that the benchmark price for U.S. crude has dropped by almost $9 per barrel since late May. The global price has dropped $7 in during the same period.

Even better news for motorists is that prices are expected to keep falling. GasBuddy's chief oil analyst, Tom Kloza, told the Houston Chronicle that 10 states, including major oil producer Texas, could see prices below $3.25 during the Labor Day weekend.

Kloza says the price could drop even further in late September, as that price spreads around the nation, and could even fall below $3 in some areas. That decline would be helped by the traditional end of summer auto travel, a time when oil companies also can produce lower-cost blends of gasoline than the ones required by law in order to reduce seasonal smog.

For a while now, the record refining level of oil producers, particularly in Canada and the United States, is part of the low-cost gasoline equation. On July 24, the EIA reported that refineries took in 16.8 million barrels of crude per day for the previous two weeks, more than the last record set in 2005.

But at the time, analysts were saying the glut probably wouldn't lead to an immediate drop in pump prices. One, Andy Lipow, president of Lipow Oil Associates of Houston, told the International Business Times that demand was matching supplies.

Another analyst, Donald Morton of the investment bank Herbert J. Sims & Co., said U.S. refineries were making the most of the opportunity to increase profits by selling abundant oil at higher prices. "They've still got good profit margins" he told The Wall Street Journal at the time. "They're trying to take advantage of it as much as they can."

All that has changed. At least for the foreseeable future, analysts agree, gasoline in the United States will reflect the bountiful supply of crude.

By Andy Tully of Oilprice.com