Oil Prices are Dropping; Lower Prices at the Pump

Summer is over, schools have reopened and summer activity is winding down. Along with this emotional and physical slowdown, we are finding a pleasant surprise at the gas pump. For those who have not been paying attention, the price for a gallon of gasoline has been steadily dropping and analysts are predicting that prices will go even lower at least until the end of 2014.

The national average for unleaded hit a summer peak of $3.75 in July. Since then, it has been dropping steadily and some analysts are predicting that it may dip below $3.00 before next year. If it goes that low, consumers will see a discount of about 76 cents per gallon from the July figure.

For every penny gasoline prices fall, $1 billion in cash flow is free to go elsewhere in the economy and that's a lot of loose change. Combined with a decline in driving which usually comes with the onset of winter, lower gasoline prices could help American drivers save $13.1 billion in the fourth quarter, money that could go to other areas of the GDP.

Crude Fluctuations

One of the primary reasons why gas prices rise or fall is the fluctuation in the price of crude oil. U.S. refineries buy several million barrels of oil every day to supply its economy, so even small price changes make a big difference. When crude oil prices go up or down, gas prices tend to follow. And right now, oil prices are on the decline.

In fact, oil prices have dropped to around $95 a barrel last week despite unrest in various regions overseas which doesn't seem to have had much bearing on oil-producing and exporting areas. Prices are falling even in light of what is taking place in Iraq. For crude prices to feel an impact, a disruption of oil shipments or oil production would have to take place and analysts do not foresee this happening in the very near future.

Events across the globe continue to contribute to the fluctuation in gas prices. Concerns regarding the Middle East have eased somewhat and a U.S. military strike in Syria also appears to be less of a possibility, now that the international community has moved in to eliminate that country's stockpile of poison gas weapons. In addition, oil is again flowing through a critical Libyan pipeline that was shut down earlier this year by striking militias.

In fact, for the first time in several years, oil is traversing the globe on tankers looking for markets. This surplus of oil can't stay afloat for much longer. According to Eric Lee, a Citigroup energy analyst, "?There's as much as 30 million barrels sitting on floating storage, and it's got to go somewhere at some point." Lee's long-term forecast for Brent is $70 to $90 per barrel, and it seems to have started this descent.

Investor and Producer Woes

What's good for the consumer, however, is not always beneficial for the investor. Equity holders must stay on the ball if they are to continue to reap profits from oil stocks. The outlook for oil is bearish with the market more negatively tilted toward Brent than West Texas Intermediate. Brent crude, the international benchmark, sunk below $99 per barrel Thursday, while WTI, representing U.S. light sweet crude, edged higher to $92.83, after touching a low near $90. WTI could drop to $85 per barrel or even lower by year's end. At $85 for crude, gasoline could hit $3.

The lower price forecast may also prove worrisome to gasoline producers. The strengthening of the U.S. dollar combined with weaker growth in Europe and other areas of the globe may prove detrimental for gas producers who worry that they will have to cut back on production in order to keep prices steady.

Strangely enough, the biggest factor easing worries over global oil supply is the increasing production of U.S. crude coupled with very moderate demand south of the border.used water slides

Bank of America estimates that the U.S. has overtaken Russia and Saudi Arabia to become the world's largest producer of oil and gas, primarily because of oil from shale. U.S. total crude oil production, which averaged 7.4 million barrels per day in 2013, is expected to average 8.5 million barrels per day in 2014 and 9.3 million bbl/d in 2015. As a result, the need for imported oil will fall from 60 per cent of total U.S. oil use in 2005 to 22 per cent in 2015.

All this is may be little interest to the average automobile owner whose main concern is how to find the lowest price at the gas pump. For the next few months at least, we should be able to look forward to lower prices so let's take advantage of this windfall and keep filling up that tank.

DailyForex.com Team
The DailyForex.com team is comprised of analysts and researchers from around the world who watch the market throughout the day to provide you with unique perspectives and helpful analysis that can help improve your Forex trading.