Falling crude oil prices and active regional refineries help offset high fuel demand
BOISE – (June 6, 2019) – Idaho drivers have something to smile about as they fuel up today – gas prices have started to drop heading into the busy summer travel season. Lower crude oil prices and above-average regional refinery activity have helped to offset strong demand.
In the Gem State, the current price for regular unleaded is $3.18, which is two cents less than a week ago and seven cents more than a month ago, but one cent less than Idahoans paid a year ago. Today, the U.S. average price is $2.80, which is nine cents less than a month ago and 14 cents less than a year ago.
Crude oil prices plunge
“At the beginning of the year, crude oil traded for $45 a barrel, and the price eventually reached $66 in late April,” says AAA Idaho public affairs director Matthew Conde. “But strong domestic oil production and concerns about a global oversupply have caused prices to slip nearly ten dollars over the past few weeks.” Today’s West Texas Intermediate benchmark for crude oil is $54/bbl.
Ongoing trade disputes between the United States and China, and more recently, the United States and Mexico, have prompted concerns that the global economy could slow its growth or even fall into a recession, leading to speculation about lower crude oil demand in the coming months. At the same time, U.S. oil production recently set a new record, extracting more than 12 million barrels per day. Both of these factors have applied downward pressure on crude oil prices.
“OPEC delegates (Organization of the Petroleum Exporting Countries) and their partners from Russia will likely agree to extend or even deepen current production cuts when they meet in Vienna at the end of the month,” Conde said. “If that happens and oil prices rise, U.S. producers may be enticed to increase their exports, which could drive prices higher here at home.”
The price of crude oil accounts for 50 to 60 percent of the retail price for gasoline.
Regional refineries stay busy
Unusually active regional refineries have also lent Idaho motorists a helping hand. In the Rockies region, the refinery utilization rate hit 96 percent last week, the highest rate for this time of year since May 2014. Despite strong Memorial Day travel, gasoline stocks in the area increased by 300,000 barrels to 6.7 million overall.
“Idaho’s average price reached $3.20 on May 15, and stayed there through Memorial Day,” Conde said. “Now prices have started to dip. We hope the trend continues heading into July 4.”
Fuel demand forecast
Based on recent travel volume, AAA projects that summer fuel demand will near record highs, but current gasoline inventories are also at their lowest level for the month of June since 2016. That combination could further deplete the available supply, putting some pressure on gas prices.
Nationwide, refiners are expected to produce 10.5 million barrels of gas per day over the next month or two, against a current demand of 9.4 million barrels per day. But the spring refinery maintenance season was long and expensive, and fuel inventories still have a long way to go before they can be replenished.
Most of the U.S. oil supply is light, sweet crude – ideal for making gasoline. However, the U.S. continues to import medium, sour crude for use in diesel and jet fuel production.
A changing pain threshold at the pump
“The U.S. average gas price is expected to drop by as much as a dime in the coming weeks, perhaps getting down to $2.70,” Conde explained. “Here in Idaho, the change might be more modest – maybe a nickel or so to reach the $3.12 range – but anything that keeps the state at or below the price that we paid last year is a welcome sight.”
In recent years, AAA has tracked the point at which 50 percent of consumers say that the price of gas is too high. In 2016, that number was $2.50 per gallon. Today, it’s $3, suggesting that many motorists have adapted to the current climate.
Although some drivers say that they would combine errands, drive less, reduce shopping, or delay major purchases when gas prices climb, the majority of Americans wouldn’t consider canceling their travel plans unless the price at the pump is $3.50 or above.
In its 2019 Atlantic hurricane season outlook, the National Oceanic and Atmospheric Administration’s Climate Prediction Center anticipates anywhere from nine to fifteen named storms, including four to eight major hurricanes. Just the threat of a hurricane can affect operations in the Gulf Coast and along the eastern seaboard, but prices could be severely impacted if a hurricane made landfall near any of the major refineries in that part of the country.