What do the final months of 2015 hold for crude and gasoline prices? The following are projections from the industry’s resident energy swami, Tom Kloza, global head of energy analysis for Oil Price Information Service (OPIS), Gaithersburg, Md.
- Crude-oil markets are still biased toward low numbers, although prices in the $40s for West Texas Intermediate (WTI) are probably reasonable. We will see crude-oil inventories build generally from September into early November so that every late summer and autumn week will feature the highest inventory that we’ve ever viewed stateside.
- Consumers have not been the beneficiary of the lower crude prices … yet. Just-in-time inventory practices, refinery problems and the first genuine driving season have converged to keep wholesale gasoline prices at $20 or even $60 per barrel above crude-oil costs in some markets. This won’t last. Once the trading community concludes that there is enough gasoline to keep the distribution system smooth into September, prices will hasten the pace of the slow-motion erosion that has been witnessed in July.
- Look for deep drops late in 2015. After a slow erosion of gas prices into August and early September, the last 100 days of the year should see much deeper drops. On balance, OPIS suspects that retail gasoline will drop 10 to 15 cents per gallon in each of the last four months of the year.
- Wholesale prices will drop by more than retail, creating a “big inning” for the motor-fuel category in terms of margins. It won’t be as big of an inning as in 2014, but it will once again push the wholesale/retail gasoline business into the crosshairs of Wall Street-inspired companies looking to “roll up” station chains and wholesale contracts into master limited partnerships (MLPs).
- Bipolar numbers. I expect the retail national average to dip below $2.25 per gallon by year’s end, and I expect plenty of states and cities where one can find $2-per-gallon gasoline or less. We don’t even need to see any more crude-oil weakness for this to happen. Refinery margins are unsustainably high; there is a bipolar aspect to these margins, and we are in one of the more manic stages on record. The depressive phase comes from November through January.
- Bottom line: Cheap fuel for the rest of the year. The year-on-year deficits may narrow once we get to December (since the market was dropping like a rock in December 2014), but it’s hard not to see consumer savings approaching $50 billion for the last six months of 2015.
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