Low Gasoline Prices Will Continue This Summer, Government Says

Source: By CLIFFORD KRAUSS, New York Times • Posted: Wednesday, April 15, 2015

A gas station in Easton, Tex. The average American household is expected to spend about $700 less on gasoline in 2015 compared with 2014, according to a report by the Energy Department. CreditSpencer Platt/Getty Images 

In its short-term energy forecast, the department calculated that the average national price for regular gasoline in the April-through-September summer driving season would be $2.45 a gallon, compared with $3.59 a gallon over the same period last year.

The average American household is expected to spend about $700 less on gasoline in 2015 compared with 2014, according to the report, and annual vehicle fuel expenditures are on track to fall to their lowest in 11 years.

The lower gasoline prices should encourage families to take to the road for their vacations, helping hotels, restaurants and amusement parks as well as refiners and gasoline stations. Lower-income consumers, who pay a relatively higher percentage of their incomes on energy than more affluent people, will benefit the most from the lower prices.

“Gasoline consumption this summer is expected to be up 2 percent from last year to the highest level in five years,” said Adam Sieminski, head of the department’s Energy Information Administration, “as higher employment and lower pump prices encourage more driving.”

The rising consumption represents a break with recent years, when more fuel-efficient vehicles and a weak job market reduced fuel consumption.

Oil and gasoline prices peaked last June and July during the surprise offensive by Islamic State militants that threatened Iraq’s oil fields, but oil prices have declined by roughly 50 percent since then. Gasoline prices fell somewhat less because taxes per gallon remained steady. Slumping prices fell with increasing rapidity after the Organization of the Petroleum Exporting Countries declined to cut production last November in the hope of forcing American oil producers to ease their drilling frenzy of recent years.

Since early January, oil and gasoline prices have been bouncing around a relatively narrow band, and there are tentative signs that petroleum prices may have bottomed. On Tuesday, the American benchmark gained more than 3 percent, to nearly $54 a barrel; it was the second day of robust gains.

Saudi Arabia, the biggest global exporter, has raised prices two months in a row in Asia as demand there has recovered. American producers have decommissioned half their rigs since last year, and the rise in domestic production is beginning to slow. Until recently, many analysts predicted that American oil storage capacity would soon reach its limit, forcing fuel prices even lower, but increasing gasoline and diesel demand now appears to be easing the glut.

Gasoline prices have been fairly stable over the last month after falling fast since last fall. The average national price for a gallon of regular gasoline on Tuesday was $2.38, according to the AAA motor club, 3 cents below a week ago and 7 cents below a month ago. The average price a year ago was $3.57 a gallon.

The Energy Department report predicted that the Brent benchmark would average $59 in 2015 and $75 in 2016. The American benchmark, West Texas Intermediate, is expected to be $7 lower than Brent this year and $5 lower next year. At those prices, most drilling in the United States will be profitable next year, though the profits of most oil companies will remain muted compared to those of recent years.

The report suggested that a successful conclusion to the nuclear talks with Iran could bring oil prices down even further, by $5 to $15 a barrel in 2016.

“A lifting of sanctions against Iran,” Mr. Sieminski said, “could significantly change the forecast for oil supply, demand and prices by allowing a significantly increased volume of Iranian barrels to enter the market.”

The report noted that Iran could have at least 30 million barrels in storage, and it probably has the technical ability to raise production by at least 700,000 barrels a day by the end of 2016. But it added that the pace of Iran’s return to the global marketplace would have to be determined by negotiations and Iran’s compliance with the terms of an eventual agreement.