This week marked the 50th anniversary of the modern self-serve fueling station with the national average price for regular unleaded gasoline dropping a penny from last week to $3.65 per gallon. Friday’s average is a penny more than one month ago. This time last year consumers were paying two cents less at the pump ($3.63), and the national average was beginning to trend downward toward the summer low of $3.47 (July 7, 2013). For the past three years, the national average has steadily declined to start the summer driving season. Although early data for summer 2014 is moving in this direction, it is too soon to say to what extent this pattern will persist for a fourth year.
Oil markets could be described as sluggish for most of April, May, and early June, but a switch to much more volatile times appears to have been flipped this week. Oil prices saw dramatic surges this week not seen since last August and September. Violence in Iraq is nothing new for more than a decade, but some traders conclude that chaos is now a more appropriate term for the sectarian violence that has gripped the northern part of that country. There is clearly the worry that Iraq could become the new Libya, with further reductions in exports a possibility. Crude oil crossed well over the $106 per barrel threshold Thursday, up over $2 for the day. Market watchers also continue to monitor the ongoing unrest in Libya and Ukraine, and its impact on global crude prices. Crude oil settled at $106.82 Friday, marking the 24th straight settlement above $100 per barrel.
In its weekly report, the Energy Information Administration noted that U.S. crude oil stocks dropped 2.6 million barrels to 386.9 million barrels. Gasoline inventories rose 1.7 million barrels to 213.5 million barrels. The pressure valve was released on gasoline demand last week after four weeks of 9-million-b/d-plus demand was met with a drop of close to 500,000 b/d from the week prior. It is hard to keep up the demand pace that had been seen leading up to Memorial Day weekend, but early June has a tendency to drop in some disappointing demand readings, and last week was no exception. Gasoline demand, by EIA metrics for the week ending June 6 came in at 8.624 million barrels per day (bpd), a decline of 479,000 bpd and the lowest demand reading in roughly six weeks. The four-week gasoline demand figure stays above the 9-million-b/d mark and is running 2.8 percent higher than the previous week.
“Prices at the pump have remained relatively stable in recent weeks, however, the price of crude oil rose dramatically this week which will likely result in increases in gas prices,” said Tracy E Noble, spokesperson for AAA Mid-Atlantic. “Typically the price of a gallon of gasoline rises about two cents per gallon for every $1 increase in a barrel of crude oil. Factors such as high crude oil prices, declining U.S. inventories and geopolitical tensions could keep prices from falling – and may even cause them to increase – at least in the short-term.”
The Week Ahead
Motorists will likely see gas prices climb higher in the coming weeks, potentially reaching a new 2014 high, if the conflict in Iraq continues. Such geopolitical conflict will put pressure on the crude oil markets, sending the price of the commodity higher. A gallon of gasoline is made up of 70 percent crude oil, therefore when crude oil rises so do gas prices. AAA already expected gas prices to remain relatively high during the summer driving season and this conflict could send them even higher.
CURRENT AND PAST GAS PRICE AVERAGES
Regular Unleaded Gasoline (*indicates record high)
Cape May County
Middlesex, Somerset, Hunterdon
Monmouth, Ocean Counties
$106.82 per barrel
$102.66 per barrel
$96.69 per barrel