U.S. refineries are taking advantage of a year-long slump in oil prices by processing the most crude in decades and they are expected to continue doing so -- even after demand slows with the end of summer, energy analysts said.
Increased production by refiners equals more gasoline in the market and a further drop in prices. A gallon of gasoline at the pump could fall below $2 by the end of the year, analysts estimated.
"Crude oil is on sale," said Andrew Lipow, president of Lipow Oil Associates LLC in Houston. "As a result, refiners are trying to process as much crude oil as they can into gasoline and diesel for the consumer."
U.S. oil inventories have dropped slightly as refineries are operating at record rates and at more than 90 percent capacity, according to the latest data from the Energy Information Administration.
During the week that ended Aug. 7, the nation's crude supply in storage dropped 1.7 million barrels to 453.6 million barrels. Refinery consumption that week was 17.03 million barrels of oil a day, a small dip from the previous week but higher than the same week a year ago when refineries processed an average of 16.21 million barrels per day, according to the energy administration.
That previous week marked the first time refinery demand has exceeded 17 million barrels a day since the energy administration began tracking the data in 1990.
"What we've seen is an increase in both the amount of crude which is being put through refineries and a percentage that they are operating at," said Sandy Fielden, an energy analyst with RBN Energy LLC, adding that refineries are "responding to the fact that they are making good margins."
Oil prices fell Monday to the lowest level in more than six years.
West Texas Intermediate crude slid 1.5 percent to $41.87 a barrel on the New York Mercantile Exchange. Brent crude, a benchmark for more than half the world's oil, fell 0.9 percent to close at$48.74 a barrel on the ICE Futures Europe exchange in London.
Crude's price rout began in August 2014, and prices have remained low because the global market remains oversupplied and demand is sluggish. The combination has led to some of the cheapest retail gasoline in years.
At the start of 2015, pump prices were at 2009 levels. Analysts said they could reach those levels again later this year.
On Monday, the average price of gasoline in Arkansas was $2.34 a gallon, down from $2.47 a gallon a month ago. The national average for regular gasoline was $2.67 a gallon, compared to $2.76 last month, according to AAA's daily fuel gauge.
Lower energy prices have not stimulated the economy as much as analysts and economists expected.
While consumers have spent less on gasoline this year, the drop in prices has resulted in a downturn in investment in the energy sector, said Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas in Fayetteville.
Oil industry companies and related businesses make up about 8 percent to 9 percent of the economy.
Oil producers have cut rigs, workforces and spending in response to weak crude prices. That includes Murphy Oil Corp., of El Dorado, which said it plans to spend about 30 percent less this year than it did in 2014.
Lower corporate revenue has "offset some of those big economic gains for the consumer," Deck said. "Certainly low gasoline prices have been more of a double-edged sword than your average consumer would think."
And instead of spending, consumers are using their savings on gasoline to pay down debt, she said.
"Consumers are still being very cautious in terms of their spending," Deck said.
Refinery output will slow this fall when facilities shut down for maintenance, Fieldan said. Refineries slow or stop production seasonally in order to switch to the production of cheaper winter blend fuel and for maintenance.
Lipow said he expects refineries to continue to operate at record levels into fall. He said this will lower gasoline prices further for consumers by providing abundant supply during a period of weaker demand.
Lipow estimates that 35 cents to 40 cents could be shaved off the national average of gasoline by the end of the year.
Tom Kloza, chief oil analyst for gasbuddy.com, a price-tracking website, agreed, saying that most people will be paying below $2 a gallon by year's end.
A Section on 08/18/2015