Declining demand for gasoline coupled with increased oil refining capacity in the U.S. should help to keep the price of gas this summer below $4 per gallon in the Midwest barring any disruption of supply, Purdue University energy economist Wally Tyner says.
Tyner expects pump prices to run about 6 cents higher than last summer and typically range between $3.45 and $3.90 per gallon, except in the Chicago area, where gas prices are higher because of clean-air rules.
But he cautions: “As you might expect, it depends. There are no certainties.”
Prices could go higher over short periods if supplies are disrupted anywhere in the system, said Tyner, the James and Lois Ackerman Professor in the Department of Agricultural Economics.
Tyner noted that prices of gasoline that motorists pay at the pump primarily are determined by crude oil prices, which have been running about $4 per barrel higher than a year ago. That normally means higher gasoline prices.
Crude oil prices are determined by global supply-and-demand forces, but their price and availability also can be influenced by events such as the political instability that has gripped Ukraine. While U.S crude oil production has increased significantly, crude oil imports still account for 40 percent of the nation’s supply, Tyner said.
Domestic gasoline consumption, however, has been declining, from 141 billion gallons in 2007 to 133 billion last year.
“Part of the decline is due to the recession, but a big part also is due to increasing fuel economy in our cars,” Tyner said. “Even though we are driving about the same number of miles, it takes less gas to go that distance.”
With decreased consumption of gasoline and more refining capacity, the U.S. is now exporting both gasoline and diesel, Tyner said.
“So today, the price of gasoline in foreign markets also influences what our price will be at the pump here,” he said.
Even though there is more refining capacity in the U.S., there are fewer inventories of gasoline, diesel and propane than in the past, Tyner said. All of those fuels are below their historic normal levels partly because companies are keeping lower stocks.
“That means any supply disruption such as a refinery outage or pipeline problem can send prices shooting up,” he said. “And when this happens, it is common for the prices to come down slower than they went up.”
Gasoline prices also vary by region of the country. Prices last week, for example, ranged from $3.44 per gallon on the Gulf Coast to $4.02 on the West Coast. They were $3.60 in the Midwest.
Source: Purdue University