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Price of crude oil effecting more than just price at the pump

Posted on Tuesday, January 13, 2015 at 1:29 pm

Motorists at Woodard’s Market in Lynchburg fill up with gasoline on Tuesday morning. Consumers have enjoyed continued falling prices at the pump and analysts expect the trend to continue through the spring. The low crude oil prices are affecting more than just the cost of gasoline, however. (MCN Photo by Robert Holman)

Motorists at Woodard’s Market in Lynchburg fill up with gasoline on Tuesday morning. Consumers have enjoyed continued falling prices at the pump and analysts expect the trend to continue through the spring. The low crude oil prices are affecting more than just the cost of gasoline, however. (MCN Photo by Robert Holman)

LYNCHBURG – Motorists in Tennessee, Georgia and now Florida welcomed the New Year with gasoline selling below $2 a gallon at some filling stations. While this begins what could be a year of monstrous savings at the pump after record-high oil production in 2014 pushed crude oil and gas prices to the lowest level in six years, the lower costs could have lingering effects in other areas also.

At Woodard’s Market in Lynchburg on Tuesday morning, the price for a gallon of regular unleaded was $1.99. It was the same across the street at the Bedford-Moore Co-op, and just up the road at Lynchburg Jiffy Mart a gallon of regular unleaded was $1.99 as well.

According to GasBuddy.com on Monday afternoon, regular unleaded was as low as $1.97 at several stations in Tullahoma.

The latest fuel price report from AAA said U.S. gasoline prices were $1.11 more expensive just one year ago. At the beginning of 2014, the national average for regular unleaded was $3.32. Prices rose in the spring due to refinery maintenance and the switch to “summer-blend gasoline,” peaking at $3.70 on April 18.

Prices fluctuated through the summer, before finishing the year on a historic 97-day streak of declines, dropping $1.08 from Sept. 26 through Dec. 31. That streak reached 101 days on Sunday, with prices falling a total of $1.13 so far.

“The entire landscape for gas prices has changed in a year,” said Mark Jenkins, spokesman, AAA–The Auto Club Group. “People went from squirming at the thought of potentially paying $4 for gasoline, to wondering how soon is too soon to fill their gas tanks so they can get the lowest possible price at the pump? The answer remains, ‘tomorrow is the best day to buy gas,’ because prices are getting cheaper every day.”

U.S. oil production is at its highest level in three decades, which has gutted crude oil and gasoline prices. West Texas Intermediate (the U.S. benchmark) began 2014 at $95.44 a barrel on the NYMEX. WTI peaked at $107.26 on June 20, before falling to $53.27 on December 31, the lowest price since May 2009.

Crude prices first fell below $100 a barrel on July 31 and never turned back. WTI dropped $44.61 from August 1 to December 31. During that same time, the national average price for a gallon of regular unleaded fell $1.26. Overall, AAA estimates that Americans saved about $14 billion on gasoline in 2014 compared to 2013, based on monthly prices and consumption.

“This year promises to provide much bigger savings to consumers as long as crude oil remains relatively cheap,” continued Jenkins. “It would not be surprising if U.S. consumers save a total of $50-$75 billion on gasoline in 2015 if prices remain low.”

The average motorist currently saves nearly $22 for a 15-gallon tank of gasoline, compared to what they paid when prices were at their peak in April. The EIA forecasts American families could save as much as $550 this year on annual gasoline expenses compared to last year. In 2014, the average savings were $120 compared to the year before.

Gasoline prices are forecast to remain much lower this year. The EIA forecasts the national average price for a gallon of regular unleaded to be $2.60 — 74 cents below last year’s average.

Airline costs

While consumers are saving money at the pump right now, it might be a few months before they notice cheaper airline tickets.

After paying nearly $4 for a gallon of gas for several years, experts said most people probably aren’t changing their travel plans right away — even though prices have been cut in half.

“In the near term, there’s not much change except the extra cash in your pocket. In the longer term, habits do change,” Purdue Energy Economist Wally Tyner said.

A habit that may change is how much people travel. Speaker’s Travel president Jon Speaker said if gas prices stay low more people may decide to plan a vacation.

“If fuel prices hover at this $1.80 to $2.00 mark, you could see an increase in travel because it’s very reasonable to get in the car and drive down to Florida or any of these destinations that families like to go to,” Speaker said.

If you prefer to fly, Speaker said it may be a few months before you notice a change in ticket prices.

“We can see an impact, but usually it’s going to come down the road. A lot of the airlines purchase fuel in advance, so what they’re flying on now they probably purchased five or six months ago,” Speaker said.

“So, they’re still paying the higher prices,” Tyner added about airline companies. “But as those hedges unwind, as they lock in new contracts, the new contracts are going to be at the lower prices so their costs are going to go down.”

 

Heating costs

Although propane is produced from both crude oil refining and natural gas processing, its price is influenced mainly by the cost of crude oil. This is because propane competes mostly with crude oil-based fuels.

Propane supply and demand is subject to changes in domestic production, weather and inventory levels among other factors.

For customers at Clark Gas Co. in Lynchburg, a gallon of propane is $2.09. Likewise, those same customers were paying $2.89 per gallon in January 2014 and in some parts of Tennessee, a gallon of propane was as high as $5.90 per gallon last January according to CheckPropanePrices.com.

While propane production is not seasonal, residential demand is highly seasonal. This imbalance causes inventories to be built up during the summer months when consumption is low and for inventories to be drawn down during the winter months when consumption is much higher.

When propane inventories at the start of the winter heating season are low, chances increase that higher propane prices may occur during the winter season.

Colder than normal temperatures can put extra pressure on propane prices also because there are no readily available sources of supply except for imports. Imports may take several weeks to arrive causing larger-than-normal withdrawals from inventories to occur, sending prices upward. Cold weather early in the heating season can cause higher prices since early inventory withdrawals will affect supply availability for the rest of the winter.

Political effects

After the poor showing across-the-board of her fellow Democrats in the 2014 elections, Hillary Clinton received some much-needed good news when the House Intelligence Committee, chaired by Michigan Republican Mike Rogers, cleared the State Department of any wrongdoing in the 2012 attack on Benghazi, Libya.

But Clinton the sharp drop in crude oil and gasoline prices of late 2014 was even better news.

Thanks to the vastly increased domestic oil production and the willingness of Saudi Arabia to maintain high production supply levels, energy costs have been falling. The drop in the average retail price of a gallon of gas has saved American consumers literally billions of dollars.

Were those lower prices to continue in 2015 and 2016, the nation could see an economic boom that creates millions of new jobs, reduces the prices of numerous consumer goods due to lower production and shipping costs, sends the stock market soaring ever higher and helps slash the federal deficit.

Low gas prices have generally coincided with economic booms. The next two years could witness the latter phenomenon, thus helping Clinton’s chances during the 2016 presidential election.

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