Dirt-cheap gas takes a breather

Increase anticipates spring

Motorists gas up Tuesday at a Valero station at East Broadway and Interstate 30 in North Little Rock.
Motorists gas up Tuesday at a Valero station at East Broadway and Interstate 30 in North Little Rock.

U.S. motorists who have been filling their vehicles with some of the cheapest gasoline in years are starting to see a rapid increase in prices at the pump.

photo

Arkansas Democrat-Gazette

Graphs showing Arkansas and U.S. gas prices.

The jump in prices -- more than 30 cents a gallon in just a month -- is the result of a seasonal price increase that occurs as spring nears and a market response to volatile oil prices, analysts said.

"It's going up because [prices] always go up ... in the late stage of winter," said Tom Kloza, chief oil analyst for gasbuddy.com, a price-tracking website. "All things considered, this is the script."

Wholesale gasoline futures, which have been increasing in the past month or so, normally rally as the nation's refiners prepare for spring maintenance, Kloza said. Gasoline for April delivery rose 5.26 cents, or 2.8 percent, on Tuesday to $1.95 a gallon in trading on the New York Mercantile Exchange -- the highest close since Nov. 26.

The average retail price for gasoline in Arkansas was $2.26 a gallon Tuesday, compared with $1.93 a month ago. Nationwide, gasoline averages $2.44 a gallon, up from $2.06 a month ago, according to auto club AAA.

"Even with these increases we've seen in February, we're still about a dollar and change" lower than last year, Kloza said.

Refineries typically shut down for maintenance in late winter and switch from processing winter-blend fuel to summer blend, which burns cleaner and is more expensive to refine. Most facilities will make the switch later this month.

A few unplanned refinery shutdowns, including an explosion at a California refinery, have had little impact on national gasoline prices, analysts said.

A strike at 12 refineries by members of the United Steelworkers union has led to no major supply disruptions, analysts said. None of the refineries, which account for about 20 percent of the production capacity in the U.S., has shut down because of the strike, according to Bloomberg News.

The strike by maintenance workers started Feb. 1. in Texas, Louisiana, California, Washington, Indiana and Ohio, Bloomberg reported.

The longer the strike lasts, "the more chance you have for problems," said Phil Flynn, an energy analyst with Price Futures Group. "There is that fear in the market," he said.

The United States is awash with oil from the nation's shale drilling boom. Record amounts off crude are still being pumped from formations across the country.

A global glut of crude has sent prices fluctuating. Oil prices started to tumble last summer and fell almost 60 percent before recovering slightly.

West Texas Intermediate crude rose 93 cents to close Tuesday at $50.52 a barrel on the New York Mercantile Exchange. Brent crude rose $1.48 to finish at $61.02 a barrel on the ICE Futures Europe exchange in London.

Lower retail gas prices are expected to result this year in $750 in savings for each U.S. household, according the the U.S. Energy Information Administration.

The drop in energy prices, particularly oil, is expected to benefit the global economy, according to a report last month by Bank of America Merrill Lynch.

The bank's economists estimate that the drop in oil prices will increase global gross domestic product by 1.1 percentage points. The report also said the drop in gasoline prices will lead to an increase in consumer demand for petroleum products.

"In the short term, the impact of lower oil prices on gasoline is primarily due to increased driving activity," the report said. "Commuters might switch to driving from cheaper transport modes such as buses or trains, and people might simply drive more for leisure as it becomes cheaper."

Some analysts said oil prices are on the rebound and shouldn't fall much further.

"I do think they are going to surprise some people and go back up," said Flynn, who said he expects oil to reach $60 to $70 a barrel by the end of the year. "I think the fundamentals have changed quite a bit in the last week."

But other analysts said that despite oil producers idling drilling rigs and cutting their 2015 capital budgets in response to low prices, there's still a glut of oil and a new problem: The U.S. is running out of places to store crude.

"Prices are going to have to drop," said Kloza. "There's a lot of crude."

At 434.1 million barrels, domestic crude stores are at their highest level in about 80 years for this time of year, the Energy Information Administration said last week.

Crude is filling up storage tanks at the main trading hub in Cushing, Okla., where capacity could soon reach 80 percent, according to Genscape, an energy data firm.

Analysts said the surplus will lead to an oversupply of gasoline and diesel fuel that will exceed any increase in demand.

Because of this, Kloza said he expects the national average for gasoline to reach a peak of about $2.70 a gallon next month before falling again.

"We still have an abundance of product," said Mike Right, a spokesman for AAA. "It's not like we're going to be running out of product anytime so I think that's a positive for the consumer."

A Section on 03/04/2015

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