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California gas prices likely to stay low in 2015

The free fall in crude oil prices is unlikely to stop soon, creating a windfall for consumers

California gasoline prices closed 2014 at the lowest level in more than five years, mirroring a free fall in crude oil prices that shows few signs of stopping soon.

The gas price declines since summer have been a boon to consumers, who are paying roughly $1 less for a gallon of regular than a year earlier. The decline, also seen nationally, has been credited with boosting sales of a wide array of items, including holiday gifts and larger cars with lower gas mileage.

And analysts said motorists are likely to enjoy low gas prices for the near future.

"This is going to be a significant positive for the U.S. economy," said Mark Zandi, chief economist at Moody's Analytics.

The shrinking numbers at the pump — about $2.66 on average for a gallon of regular in Los Angeles on Wednesday, according to AAA — are tied to a sharp decline in crude oil prices. A North American shale oil boom has boosted supply while global economies have weakened, reducing demand.

As a result, a global oil glut has formed.

On Wednesday, crude prices plunged further. West Texas Intermediate crude, the U.S. benchmark, fell 85 cents, or 1.6%, to $53.27 a barrel on the New York Mercantile Exchange, a 46% decline from a year earlier. Tom Kloza, oil analyst for the Oil Price Information Service, thinks the market is nearing a bottom, but couldn't say when it would be reached.

"You keep looking for it and each bottom brings another trap door," he said.

Gene McGillian, senior analyst at Tradition Energy, said he expects crude to keep falling for the next month or so. Saudi Arabia has repeatedly signaled that it won't cut production to stabilize the market. And if global economies remain weak, crude could drop to the $45-$50 range in the first quarter, McGillian said.

There are downsides to the oil glut, especially for Americans employed in the energy industry.

Houston-based Marathon Oil Corp. announced in December that it expects to lower its 2015 capital budget by 20%. And in late October, Hercules Offshore Inc., also in Houston, said it would lay off about 324 employees who work on oil rigs in the Gulf of Mexico.

"The energy industry is responding quickly," Zandi said. As U.S. firms cut back on drilling, McGillian expects crude prices to rebound in the second half of 2015, but not enough to push gasoline prices beyond 2014 highs.

Because the U.S. uses more oil than it produces, bargain-basement oil will be a net positive for an economy that already appears to be kicking into high gear, Zandi said. If national gas prices in 2015 average $2.60 a gallon as the federal government forecasts, Zandi said, consumers will save roughly $100 billion for the year and will spend most of that extra cash.

At the moment, consumers are enjoying what many economists have labeled the equivalent of a massive tax break.

That's welcome news to consumers and business operators, including Hank Maarse, owner of Jacob Maarse Florists in Pasadena. He said he plans to upgrade part of his delivery fleet in January, using the money his company is saving on gas.

"It's great," he said of lower gas prices. "It's like a happy surprise."

California drivers, however, may be in for some jumps, in part because of seasonal factors. California prices usually start climbing in early to mid-February because of the state's early switch to the more expensive summer gasoline blend, said Marie Montgomery, an Auto Club spokeswoman.

And starting Thursday, motor vehicle fuels are included in the state's cap-and-trade program, which lets polluters buy and sell rights to emit greenhouse gases. Oil companies and environmentalists generally agree that the change will put upward pressure on prices.

Dave Clegern, a spokesman for the California Air Resources Board, said the new rules are expected to raise gas prices by about 8 cents to 10 cents in January.

Despite those head winds in California, a return to widespread $4 gas isn't likely in 2015, even during the summer driving season, oil analyst Kloza said.

That prediction, he said, is directly tied to oil prices, which have been cut roughly in half from their $100 level in the summer.

"$100 crude looks like a little [of a] reach for the rest of the decade," Kloza said.

Twitter: @khouriandrew

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