Yes, California’s got cheap gasoline — under $3
If you have noticed that prices at the gas station seem a little bit lower this month, you’re not imagining things.
The battle between OPEC and U.S. shale oil drillers has led to another slump in the price of crude and, as a result, the price of gasoline has been on the decline, even as California’s summer driving season goes into full swing.
Gas prices in the state have dropped for four consecutive weeks, according to numbers compiled by the U.S. Energy Information Administration, and on Monday the average price of regular gasoline fell below $3 a gallon.
Nationally, the price of regular has dropped nearly 10 cents a gallon in the last two weeks, to $2.32 on Monday.
And David Hackett, president of Stillwater Associates, a transportation energy consulting company in Irvine, thinks the chances are good that the low-price environment will stick around for the next couple of months.
“There’s more room for gas prices to come down,” Hackett said.
That’s good news for California drivers, who as late as April 2014 paid an average of $4.25 a gallon for regular gas. Prices run higher in California than most states due to the state’s boutique fuel blend requirements, as well as taxes and environmental mandates.
Since gasoline comes from oil, the price of crude affects prices at the pump, and oil has been on a losing streak of late.
On Wednesday, the price of West Texas Intermediate — the benchmark price for crude in the U.S. — dropped 98 cents to $42.53 a barrel, the lowest level in 10 months and more than 20% lower than where it stood in February. It ended the week at $43.01.
That’s not where the members of the Organization of the Petroleum Exporting Countries cartel want prices. Less than a month ago, OPEC agreed to extend production restrictions in the hopes of boosting oil prices. But after a very fleeting rally, prices have nose-dived.
In what has developed into a familiar pattern, U.S. producers have more than made up for reductions in supply. Using techniques such as hydraulic fracturing (fracking) and horizontal drilling, companies have ramped up production in shale oil formations such as the Permian Basin in western Texas and southeastern New Mexico.
Oil inventories have remained high and U.S. refineries averaged a record-high 17.7 million barrels per day last month, with utilization rates reaching 95%.
“We’re aflush with oil and gasoline right now,” said Brian Youngberg, senior energy analyst for St. Louis-based Edward Jones. “Not just here in the U.S. but globally.”
Hackett said a power outage in early May at the Valero refinery in the Bay Area caused gasoline prices in California to tick up last month, but the problem has been cleared up, adding another factor for lower gasoline prices.
As a rule of thumb, changes in oil prices take about six weeks to be fully absorbed into the price of retail gasoline so, with the current slump continuing, Hackett thinks motorists can expect to see lower prices well into the rest of the summer.
“I wouldn’t be at all surprised if [the price of oil] goes back down and tests the recent lows of around $27 [a barrel],” Hackett said. “That’s entirely possible.”
As recently as three years ago, the price of global crude exceeded $100 a barrel. But rapidly rising production in North America put downward pressure on prices and in November 2014, OPEC refused to cut production.
Though OPEC ministers denied it, the move was widely interpreted as a way to oust U.S. shale producers. Prices around the globe plummeted.
Although more than 200 U.S. producers and oilfield-service companies have filed for bankruptcy since the start of 2015, those who have survived had proven to be remarkably resilient, finding ways to reduce costs so that many of them can make money with oil at $50 a barrel.
Motorists have been “the beneficiaries of this undeclared war between OPEC and the shale producers,” Youngberg said.
But at the same time, industry analysts believe the glut will come to an end, inventories will flatten and oil prices will eventually move back up, although many think the days of $100 a barrel oil may be over.
“We think oil will get back up toward $60 [a barrel], probably in the first half of 2018,” Youngberg said. “Originally we thought it would be more toward the end of this year but it will probably leak into next year.”
Another indication of higher prices for consumers came earlier this week.
On Tuesday, a group that included physicist Stephen Hawking and Republican elder statesmen James Baker, George Shultz and Henry Paulson unveiled a plan to tax carbon emissions, starting at $40 per ton of carbon dioxide produced by industry, which is estimated to add 36 cents per gallon to the price of gasoline.
The plan is designed to dampen demand for fossil fuels and is being promoted as a “free-market, limited government” response to fight global warming while replacing government programs such as the Clean Power Plan and protecting companies from climate change-related lawsuits.
Oil giants Exxon Mobil, BP and Shell have come out in support of the plan.
“A carbon tax is a difficult thing to get your hands around,” Youngberg said. “I will say, at the end of the day who pays for a carbon tax? It’s the consumer and it will eventually flow into gasoline prices at the pump.”
Business
rob.nikolewski@sduniontribune.com
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