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Wednesday, February 8, 2023

Gasoline is cheaper now than it was a year ago – and could drop below $3

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Gasoline prices are now cheaper in the US than they were a year ago, and the price per gallon could drop below $3 by the end of the year for most Americans.

According to AAA, the national average for a gallon of unleaded gasoline was $3,329 Thursday, down from $3,343 a year ago, before Russia’s invasion of Ukraine. Unleaded gasoline cost a record $5.01 per gallon on June 14 and remained high throughout the summer and fall.

Gas prices fell 15 cents a gallon last week and are down from $3.80 a gallon a month ago.

“The next 55 days look good for consumers, but ugly for refiners,” said Tom Kloza, global head of energy analytics and co-founder of OPIS, formerly Oil Price Information Service. “They are running refineries so hard because of the diesel shortage that they are making too much gasoline. We are about 7% behind last year in terms of demand.”

Kloza expects to see gasoline below $3 a gallon for most Americans before prices begin to rise again when refineries begin producing summer blends in February. “You just can’t run refineries at these high rates and make too much gasoline for the summer because there’s no place to put it. I think we will see the lowest prices of 2023 in the next 55 days,” he said.

Patrick DeHaan, chief of petroleum analysis at GasBuddy, expects the national average to drop below $3 a gallon by Christmas, barring an event that pushes oil prices up. Even with OPEC+ promising a 2 million barrels per day production cut last week, oil prices are still falling.

West Texas Intermediate Oil Futures were trading at $73.81 a barrel Thursday morning and are down 1.9% for the year so far. DeHaan said an oil wildcard is the timing of the reopening of China’s economy, after the Covid shutdown. This would significantly increase demand for oil and other commodities.

But for now, gasoline prices are falling.

″$2.99 ​​seems like a pretty strong entry right now. The question is whether it will be at 11 p.m. on the 23rd or 11 a.m. on the 24th,” DeHaan said. Gasoline prices vary widely by region, averaging $4.66 per gallon in California, but already below $3 per gallon in some states, including Texas, Louisiana, Tennessee, Georgia, Mississippi, Arkansas, and Alabama.

DeHaan said the price could fall to $2.75 a gallon before starting to rise again later in the winter. The refinery’s capacity utilization rate was over 95% last week, an unusually high level for this time of year, DeHaan added.

“Gasoline inventories saw a huge increase. That will probably give refiners a little bit of ammunition to slow things down,” DeHaan said.

Kloza said the US currently has 26 days of supply, more than adequate with demand falling to a four-week average of 8.4 million barrels per day.

Diesel stocks have also grown and that could help depress prices. The average price for diesel was $5.03 per gallon, down from $5.81 in June. Diesel is scarce worldwide because Russia was a major oil and fuel exporter to Europe. As a result, diesel’s price decline has been much more superficial and the price is a far cry from the average $3.61 per gallon of a year ago.

Before the invasion of Ukraine, Russia exported 2.4 million barrels per day of refined petroleum products, including more than 1.1 million barrels per day of diesel, according to Bank of America. About half of the refined products went to Europe.

DeHaan expects diesel could eventually drop below $4. “I think diesel could fall into the $3s,” he said. “That’s the bigger factor in inflation right now...Gasoline is now lower than the level of a year ago. Gasoline has been deflationary. Diesel could cut another $1 to $1.50 per gallon,” he said.

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