- Last Updated on 11:01 AM 01/23/12
- BY Special to the Gazette
Three weeks into the new year gas prices stabilized somewhat, yet remain at historic highs for the month of January.
Despite U.S. demand for gasoline hovering at a multi-year low, high crude oil prices and reports of impending refinery shutdowns have fueled a 10-cent increase in the national gas price average since Jan. 1.
The national average for regular grade gasoline dropped a penny this week to $3.38 per gallon Friday. Prices are 17 cents above month ago prices and 26 cents above year ago prices, yet remain 73 cents below the all-time record high of $4.11 set three and a half years ago.
Crude oil moved back into triple-digit territory this week, supported by Nigerian production issues and ongoing Middle East tensions over Iranian sanctions and the Straight of Hormuz, with Iran threatening neighbors of consequences if they raise oil output to replace Iranian oil. In addition, positive economic news out of China, the world’s second largest economy, showed an 8.9 percent growth in the fourth quarter also supported crude’s upward movement.
Yet, by week’s end it was news out of China showing manufacturing declined for a third month and a continued debt crisis in Greece that sent crude below the $100 mark. Given multiple geopolitical issues in flux, crude oil prices could remain volatile for the next few weeks. However, analysts believe such volatility and upward movement will not last, reinforcing this year could be quite similar to 2011 in the sense that crude oil (and in turn gasoline) prices were front-end loaded. Crude oil settled at $98.33 Friday, a one-month low.
In its weekly report, the Energy Information Administration (EIA) showed the nation’s crude oil supplies fell 3.4 million barrels to 331.2 million barrels, contrary to analysts’ expectations of a 2.8 million barrel build. Gasoline supplies rose by 3.7 million barrels to 227.5 million barrels, in line with analysts’ expectations of a 2.6 million barrel build.
Gasoline demand was dismal, dropping to under 8 million barrels per day (bpd), almost 1 million bpd less than the same week last year and the lowest level since 2001. Gasoline demand was off to a sluggish start in 2011 and is even worse to start 2012, as the four-week gasoline demand average is over 6 percent behind the same time last year. Supporting lackluster demand expectations for early 2012, the Federal Highway Administration (FHA) reported October 2011 vehicle miles traveled to be down 6 billion, or 2.3 percent from October 2010.
“Record-high gas prices for January have left motorists wondering just how high prices will go this year and when (rather than if) prices will shatter all-time record high prices,” said Martha M. Meade, manager of Public and Government Affairs for AAA Mid-Atlantic. “The current tension in the Middle East and escalating crude oil prices have led analysts to believe it is only a matter of time – as early as perhaps April – when gas prices reach the $4 to $4.25 per gallon range, setting a new all-time record high.”
The week ahead
Analysts’ projections indicate consumers could pay record high prices within the next few months. Fred Rozell, retail pricing director at Oil Price Information Service (OPIS), expects the national average for a gallon of regular unleaded gasoline to reach $4 to $4.25 per gallon when the market peaks, sometime between April and early May, before retreating later in the year.