As summer fades into the sunset, gasoline prices have begun to show signs of weakness. The absence of major hurricanes, economic slowdown in China and a nuclear agreement with Iran have put significant downward pressure on crude oil prices, leading to late summer relief at U.S. pumps.
Early this year in GasBuddy’s 2015 forecast, we highlighted the downward pressure on crude oil as compared to previous years, and that it was likely to spawn additional gasoline demand as the stars aligned in favor of motorists hitting the road this summer. Much of the year has played out similar to expectations, but as always, there have been some surprises.
Refinery problems have been on the top of the list—not simply because of the occurrence of such events, but also the magnitude. Topping the list of major refinery problems is ExxonMobil’s Torrance, Calif., refinery explosion earlier this year, which has led to impressive summer volatility at pumps throughout Southern California and the West Coast. At the peak of the storm, if one were to exclude California’s gasoline price average, the national average would sink by more than 10 cents per gallon (CPG).
Though there has been limited relief for the West Coast, prices there remain elevated and will remain volatile until CARB gasoline requirements ease and demand cools.
Today’s Checkup
Since May, the national average has remained $2.65 to $2.83 a gallon, a relatively tight range, though there has been a considerable gap between the cheapest and most expensive states this summer. California’s average price since June 1 stands at $3.62 per gallon, while South Carolina’s stands at $2.42 per gallon—a difference of more than $1, highlighting the regional refinery issues on the West Coast.
For retailers, a massive spike in wholesale gasoline prices that started in early July led to negative margins at many stations for days or longer. Much of Southern California saw the biggest spikes in gasoline prices ever, even besting the spike in 2012 after Chevron’s Richmond, Calif., refinery caught fire. Significant volatility could occur in areas and cities that Southern California’s refineries supply at a moment’s notice.
Though California issued fuel waivers in the aftermath of the 2012 price spike, Gov. Jerry Brown has not (as of press time) responded to petitions seeking waivers in this situation.
While the national average has not climbed quite as high as GasBuddy feared in our January forecast, the average so far this summer has been higher than expected due to very strong demand, which has seen refineries inputting record amounts of crude oil as economics remain strong for refining.
A Crude Reality
Thanks to the U.S. shale oil boom and continued yet slow growth in Canadian oil sands, the United States finds itself somewhat insulated from potential shocks to global prices. GasBuddy gasoline price projections for the rest of the year have been revised lower to reflect the tremendous downward pressure on crude oil seen in recent weeks as concerns grow over China’s economic slowdown, making more crude oil available on the global market, as well as prospects of even more oil being added by Iran after a nuclear agreement in July.
Also of note is strength in the U.S. dollar, which has driven prices of Canadian crudes back into the $30-a-barrel range, putting any refiner able to access such oils at a significant advantage. Canada, on the other hand, is seeing its gasoline prices surge as the Loonie plunges.
With oil inventories staying near record levels this summer and with refinery maintenance looming in the third quarter, oil inventories could breach 1.2 billion barrels, leading oil prices to even shakier ground. Should the Iran deal pass muster with Congress, there could be worry of military action from Israel. The Saudis have also made it clear that allowing Iran nuclear technology is not acceptable. While the market seems to diminish this potential, it should not be completely discounted.
Regional Autumn Forecast
The Northeast saw some of the nation’s most stable gasoline prices this summer when compared to other regions. While there is less North Atlantic refining than in previous years, imports of gasoline have rallied this summer vs. prior years, keeping gasoline prices in check. The Northeast won’t see the nation’s lowest gasoline prices this autumn, but it should see prices fall into the low- to mid-$2-per-gallon range.
The Pacific Northwest continues to be a mixed bag. While California’s refinery issues have led Oregon and Washington to see higher gasoline prices, the arrival of fall should help isolate some of California’s drama. Look for gasoline prices in these two states to fall into the low-$2 range, with eastern Washington seeing limited instances of prices below $2 per gallon.
The Gulf Coast and portions of the Southeast are tough cookies. U.S. Gulf Coast capacity has seen advances to near record levels and by far represent the collection of refineries with the greatest output in the world. But exports have continued to grow and the coast has generally escaped significant hurricane shutdowns since 2008. Without the intrusion of tropical storms and hurricanes, Gulf Coast states from Texas through Virginia have the highest likelihood of seeing prices below $2 per gallon throughout the fall.
Florida and some southeastern coastal areas are less than 1,000 miles from many Gulf Coast refineries, but shipping rates for moving gasoline from Texas or Louisiana to the Sunshine State are much higher than before the shale-oil boom. Higher motor fuel taxes in Florida and less infrastructure mean these areas will lag the cheap gas prices of neighboring states. Florida will see gasoline prices in the low-$2-per-gallon range for early parts of autumn before going under $2-per-gallon toward Thanksgiving.
Great Lakes and Plains states have some of the nation’s easiest access to cheaper Canadian crudes, and their gasoline stations are notorious for competition and price wars. While some of these states see gasoline taxes that are higher than average, intense competition will help usher in lower prices quicker than other regions. Most states will see gasoline prices under $2 per gallon by Thanksgiving.
The Rockies enjoy some of the best connections to Canada’s cheap oil as well, though the region is seeing elevated gas prices due to problems at some of the refineries in the region. Once those slowdowns are worked out, expect the Rockies to enjoy decreases seen nationally, ultimately to see prices under $2 per gallon showing up … fashionably late.
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