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UPDATE 2-US summer gasoline price outlook falls from $4 danger zone
May 8, 2012 / 4:55 PM / 6 years ago

UPDATE 2-US summer gasoline price outlook falls from $4 danger zone

By Selam Gebrekidan and Matthew Robinson

NEW YORK, May 8 (Reuters) - U.S. consumers bracing for a costly summer have reason to breathe easier.

Regular gasoline prices will average $3.79 a gallon between April and September this year when more motorists are likely to hit the road, the data arm of the U.S. Department of Energy said on Tuesday. That is the exact same price as the national average last week, according to data released on Monday.

The downgrade comes after a 13 percent drop in crude oil prices from their peak in March, and would put pump prices on course to be just 8 cents higher than a year ago, the department’s statistics arm said in its monthly outlook. Last month the agency forecast a price of $3.95 a gallon.

Lower gasoline prices will temper concerns the economy is heading for a repeat of last year when a spike in gasoline left people with less money for other expenses and stole momentum from the economic recovery.

“Billions of dollars won’t be spent by consumers on gasoline that can be spent on other things,” said Chris Varvares, an economist at Macroeconomic Advisers in St. Louis.

Lower gasoline prices will also take the edge off of inflation, which could give the U.S. Federal Reserve more room to ease monetary policy should the recovery falter.

But the forecasts also reflect a slightly gloomier reality. Prices have been falling because of lackluster economic indicators in both the United States and Europe. Gasoline futures prices slid below $3 a gallon for the first time since February and consumption is down more than 6 percent from a year ago amid still high unemployment.

“The (EIA) forecast is more a reflection of what gasoline prices have already done over the past month,” said Tim Evans, Energy Analyst with Citi Futures Perspective.

Crude prices, which account for about two-thirds of the cost of gasoline, surged in the first quarter due to a string of production outages across the globe and the threat of a large-scale disruption of Iran’s supplies due to Western sanctions against Tehran.

International benchmark Brent crude topped $128 a barrel for the first time since 2008 in early March, driving U.S. gasoline to near $4, the highest level ever for that time of year.

Further support for gasoline prices came from expectations that three refineries on the East Coast would be shut down due to weak profits, causing regional supply shortfalls.

But the market’s focus has now shifted. U.S. crude has tumbled below $100 a barrel to touch its lowest level since December because of persistent economic uncertainties in Europe and the United States and the largest crude stocks buildup since 1990.

Concerns about supplies on the Eastern seaboard eased and prices followed lower after two of the three East Coast refineries threatened with shutdown found potential buyers.


The downward revision in gasoline prices came despite forecasts for a slightly tighter oil market this year. In the May Short-Term Energy Outlook, the administration projected oil production from non-OPEC nations will average 52.6 million barrels per day in 2012, a 100,000 bpd cut from previous growth forecasts.

Moreover, EIA raised demand forecasts worldwide by 70,000 bpd to 960,000 bpd in its latest reports.

Gasoline demand picks up over the summer as motorists take to the road for holidays, with the late May Memorial Day holiday weekend kicking off the season.

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