Summer Gas Prices Likely to Stay Well Below Those of Last Year

Motorists can expect gasoline prices this summer to remain considerably lower than what they were last year even though they have been edging up in recent weeks, Purdue University energy economist Wally Tyner says.

“The best bet for this summer is that gasoline prices will generally remain below $3 a gallon, except in California and Hawaii, where they are normally higher than the rest of the country,” he said.

Tyner noted that while the national average price was $2.69 per gallon last week, it was 98 cents lower than at this this time last year.

Tyner explained some key drivers of gasoline prices:

• Crude oil inventory. It continues to rise despite U.S. production of crude oil dropping last month for the first time since 2013. (With crude oil in the range of $50-$60, it is not profitable to invest in some of the shale oil fields.) High inventory levels tend to keep prices down. Tyner said inventory currently is at 485 million barrels, compared with a normal inventory of about 350 million barrels.
• Global demand. It has grown slightly faster than had been predicted earlier, so that could nudge prices higher.
• Supply disruptions. Any could lead to a short run of price spikes. In addition, Tyner noted that there continues to be instability in important oil producing countries such as Libya, Iraq, Nigeria and Venezuela.

“Greater instability or political or military unrest in any of these countries could cause prices to move higher,” he said.

In the longer term, Tyner said a nuclear deal between the U.S. and Iran resulting in a lifting of sanctions could increase the flow of Iranian oil on the world market, lowering gasoline prices.

“That could result in a price drop at the pump of as much as 30 cents in 2016,” he said.

Source: Keith Robinson and Wally Tyner, Purdue University