Oil’s slide may bring some relief at the pump

Crude oil briefly fell below the key trading threshold of $60 a barrel Thursday before rallying to positive territory for the first time in six days.

And with motorists driving less and supplies growing even though the summer driving season is underway, some analysts are predicting $2.75 a gallon gasoline in California and $2.50 a gallon or less nationally before July comes to an end.

The supply of gasoline in the U.S. was climbing, beating the volume that had built up before prices crashed last year, according to the Energy Department’s analysis released this week.

The low demand “was most noticeable in states like California, Nevada and Arizona,” said Tom Kloza, chief oil analyst for the Oil Price Information Service, or OPIS, in Wall, N.J., who was predicting the big drop in retail gasoline prices.

California’s widely publicized budget deficit was adding to the deep financial uncertainty of motorists and helping to rein in their driving even more, Kloza said.


“The good news is cheaper gasoline for the rest of the month. The bad news is state IOUs and your 401(k),” he said.

Crude oil supplies in the U.S. were running 53.4 million barrels ahead of last year, with 347.3 million barrels on July 3, the Energy Department said. Gasoline inventory rose 1.9 million barrels to 213.1 million barrels.

On Thursday, the average price of a gallon of gasoline in California was $2.939, according to OPIS, which with Wright Express tracks prices through about 100,000 daily credit card transactions at service stations across the U.S. That was about 4.6 cents below the week-ago price, and $1.613 lower than in July 2008, when gasoline prices neared their all-time record.

OPIS said the national average Thursday was $2.580 a gallon, 4.9 cents below the week-ago price and $1.528 a gallon below the year-ago price.

The OPIS numbers are posted every day on AAA’s website.

Oil’s direction was less clear Thursday, but some analysts said a close below $60 a barrel could lead to a repeat of last year’s oil collapse, possibly dragging down futures prices as low as $20 a barrel.

Crude oil futures for August delivery closed up 27 cents to $60.41 a barrel on the New York commodities market after trading as low as $59.25 during the day.

Oil is down about 17.7% since trading as high as $73.38 on June 30.

“There are concerns that the green shoots of economic recovery are withering and oil could go a lot lower,” said Phil Flynn, vice president and senior market analyst for Alaron Trading Corp. in Chicago.

Some analysts also cited vast amounts of crude stored on supertankers at offshore locations, warning that oil could plummet if storage costs rise or if investors think that oil in future months will be worth less. They would then be encouraged to dump that oil back onto an already oversupplied market.

But other experts strongly disagreed. They said that oil hovering around $60 could quickly go higher when the recovery from the global recession finally gets underway.

“We believe the recovery scenario will take place in the first half of 2010. Demand will reestablish itself,” said James DiGeorgia, editor of Gold and Energy Advisor.