A mild January and falling crude-oil prices have given motorists a midwinter break, dropping gasoline below $2 a gallon at some pumps nationwide.
According to a report in the Louisville Courier, the relatively warm winter weather apparently reduced demand for heating oil, keeping stocks high enough that refineries could make more winter-grade gas.
“The (U.S.) Department of Energy reported a large gasoline inventory build last Wednesday,” and that sent wholesale prices down late last week, said Linda Casey, spokeswoman for Marathon Petroleum Co.
There’s also been a “fairly sharp” drop in oil prices, said Jeff Lenard, of the National Association of Convenience Stores. Each decline of $1 in the price of crude translates into a 2.4-cent drop in the pump price, Lenard said.
But like a warm spell in February, the fuel-price relief is probably too good to last.
“People should welcome it, but don’t get used to it,” said oil-price analyst Tom Kloza. “I don’t think we’re looking at a return to the prices we saw in 2002 or 2003.”
Even the 2004 level would be nice. February prices that year were in the $1.60 range. A year ago, they were at $1.90.
Historically, lower winter demand drives prices down this time of year. But rising crude-oil prices have limited that effect in recent years by stirring speculation in the future price of gasoline.
“Last year the market was anticipating such an incredible spring they valued the winter gasoline even a bit higher,” said Kloza, an analyst with the New Jersey-based Oil Price Information Service.
He and others said the double impact of strong inventories and cheaper crude oil short-circuited that speculation this year, but uncertainty in the Middle East about nuclear development in Iran and normal seasonal increases will send prices up again soon.
For one thing, refiners are about to convert their production to more expensive summer blends.
“We start the shifts in February,” Casey said.
That means refineries will begin selling down their winter inventories to empty their storage tanks for the summer blends, she said. That will gradually reduce supplies and put upward pressure on prices.