LITTLE ROCK — After falling for six straight weeks, gasoline prices have started to rebound with the approach of the Fourth of July weekend and the travel it entails.
The average price of a gallon of regular was about $2.61 in Arkansas on Friday, up 4 cents from a week ago.
Experts expect the trend to continue but do not foresee a spike in prices this summer.
The price of regular compared with a year earlier is about 9 cents higher nationwide and 5 cents higher in Arkansas.
Still, the Arkansas price is down from $2.65 a month ago, according to AAA.
The prices reflect market fluctuations in the price of crude oil. Futures contracts fell about $20 in May, from a high of more than $90 a barrel to about $70 at the end of the month.
Since then, however, prices have risen. Crude oil for delivery in August closed at $78.86 a barrel Friday on the New York Mercantile Exchange.
The good news, according to analysts, is that while gasoline prices will most likely continue to rise, they probably won’t reach the $3 a gallon predicted earlier this year. The Energy Information Administration projected earlier this month that regular will average $2.79 this summer, shaving 15 cents off its projection from May.
“We’re sort of in the 11-week period where we have the highest gasoline demand, and you have the highest risk of a disruption [in supply] having an impact on prices,” said Tom Kloza, chief oil analyst for the Maryland-based Oil Price Information Service. Kloza said he predicts a gallon will cost between $2.60 and $2.90 in the coming months.
Concern about possible weather events, such as a hurricane in the Caribbean that moves into the Gulf of Mexico, might be making some traders nervous, Kloza said. The National Oceanic and Atmospheric Administration has predicted that the hurricane season will be more active than usual.
But analysts agreed that changes in oil prices don’t always make immediate sense, since supply and demand have not been the primary factors driving movements in the oil futures market in recent months. Rather, trading activity fueled by economic news has been driving the price of oil.
“Logically, leaving [the trading on the New York Mercantile Exchange] out of the picture, there’s no reason prices shouldn’t be lower than they are now,” said James Williams, energy economist and owner of WTRG Economics near Russellville. He said oil prices seem to track the stock market, even when stock market news will not affect oil consumption.
And mixed signals about the strength of the economic recovery have been reflected in oil prices. For example, financial problems in Greece were one of the factors that caused crude prices to drop, said Mike Right, a spokesman for AAA.
“It looks like it’s going to be that way for a while - you know, fits and starts, stops and retreats - I think at least until things settle down and start going in a particular direction for a period of time. And who knows when that’s going to happen,” Right said.
The result is that oil prices may continue to fluctuate, but barring a major event, such as a big storm or international conflict, they will probably not go beyond the $70 to $80 range, Williams said. And a $1 increase in the price of oil usually translates to a 2.5-cent bump at the pump, he said.
Both Kloza and Williams said that increased demand for commodities from hedge funds and retirement funds looking to diversify has further distanced the oil market from its fundamentals.
“More money, more assets under management continue to flow into commodities in general and oil in particular,” Kloza said. “That’s the yeast that bakes the higher-price bread in the market.”
Looking forward, the response to the explosion and sinking of the Deepwater Horizon rig in the Gulf of Mexico could eventually affect oil supplies, and prices. Though the event has not had any discernible effect on prices so far, long-term restrictions on offshore drilling could be a game changer for the oil industry.
“I think the oil spill has tremendous consequences in future oil prices, but I think those consequences are 2014 through 2018, not in 2010,” Kloza said.
Front Section, Pages 1 on 06/26/2010