Slump in Oil Likely to Pull Gas Lower
California gasoline prices have fallen to their lowest level since February, and steep declines Monday in petroleum futures pointed to cheaper gas ahead.
The statewide average cost of self-serve regular slipped 3.9 cents over seven days to $2.01 a gallon, according to a weekly survey released Monday by the U.S. Energy Information Administration. Ten straight weeks of price decreases have cut 39 cents off the average cost of gasoline in the state.
Though an increasing number of stations are offering regular at $1.99 a gallon -- or lower -- the averages for Los Angeles, San Francisco and the state as a whole haven’t been under $2 since Feb. 16, EIA figures showed. And the new average is 41.5 cents higher than last year.
Nationwide, the average fell 2.4 cents to $1.791 a gallon, 31.3 cents above year-earlier levels, the EIA said.
Analysts attributed the recent decline to weaker seasonal demand for gasoline as well as growing inventories across the country of oil, gasoline and other fuels.
Two additional factors -- a new forecast for warmer weather in the East and word that storms and airport glitches cut holiday demand for gasoline and jet fuel -- sparked a dramatic sell-off in oil-related commodities Monday at the New York Mercantile Exchange.
“Everything really got hit hard today,” said Eric Bolling, an independent trader on the Nymex. “The trend is down ... and there’s no reason for it to stop right now.”
Oil futures on the Nymex fell $2.86, or more than 6%, to $41.32 for a barrel of light, sweet crude for February delivery. The U.S. benchmark price of oil has fallen 25% since hitting a record closing of $55.17 on Oct. 26.
“There continues to be plenty of oil around, and refiners are running at more than 90% capacity,” said Michael Fitzpatrick, vice president of energy risk management at Fimat USA in New York. “It’s become clear that the price was well overdone in late October.”
Bolling said the rush downward Monday began with natural gas, which headed sharply lower once traders digested weather reports predicting milder temperatures in the East and less need for heating fuels such as natural gas.
Natural gas for January delivery fell 7.6% to $6.16 per million British thermal units on the Nymex, marking a three-month low. Heating oil futures followed suit, diving 8.7% to $1.211 a gallon, representing the largest one-day drop since September 2001, when heating oil fell 14%.
Only a few months ago, traders sent both heating oil and natural gas prices soaring on fears the winter would be cold and supplies wouldn’t be sufficient to meet demand. Since then, U.S. oil and fuel inventories have grown steadily, and the warmer weather forecast suggests that demand will be lower as well.
“The inventory report last week started the ball rolling,” said Phil Flynn, senior market analyst with Alaron Trading Corp. in Chicago. The latest temperature prediction, he added, “has only added to the slide.”
The EIA, an arm of the Energy Department, will release an updated inventory report Wednesday, and many analysts expect it to confirm that petroleum stocks are sufficient for winter. That could trigger another sell-off.
And that would be good news for California motorists, who have suffered through a summer of record-breaking pump prices. Because wholesale prices have been dropping for California gasoline, some experts contend that the state’s average retail price should already be well below $2 a gallon.
On Monday, the Oil Price Information Service pegged the cost of regular at $1.188 a gallon on the Los Angeles spot market, where refiners and others can buy last-minute fuel supplies. Adding 60 cents for taxes and transportation would put the break-even retail cost of gasoline at about $1.80 a gallon.
“Based on where wholesale prices are settling, we would expect gasoline prices to be lower than they are,” said Jeff Spring, spokesman for the Automobile Club of Southern California. The good news, he added, is that “at least for the next few weeks, prices should be headed downward.”
Bloomberg News was used in compiling this report.
