Fuel Costs to Drop This Summer

US - Consumers should enjoy a summer driving season without unusually high gasoline prices and probably lower than they were last summer, says a Purdue University agricultural economist.
calendar icon 22 May 2013
clock icon 2 minute read

Wally Tyner , specialist in energy economics and policy, expects prices in the Midwest to be between $3.50 and $3.90 a gallon, with prices in the South and Southeast in the range of $3.15 to $3.55.

"That certainly could change if something unforeseen happens, but I don't expect prices over $4, except on the West Coast," he said.

Gas prices usually climb in the summer as motorists log more driving miles for vacations and weekend getaways, and fill their tanks with more expensive summer blend fuels. Those factors are being canceled out by increased oil production by non-Organization of Petroleum Exporting Countries nations and the move to cars with greater fuel efficiency.

As a result, crude oil prices are projected to be slightly lower this summer than in 2012, Mr Tyner said.

"We're increasing production much faster now, and production is growing faster than consumption for the first time since 2009," Mr Tyner said. "That means OPEC countries - particularly Saudi Arabia - have spare capacity and aren't producing as much."

North America is leading the oil boom. Technology to produce oil from shale rock and bituminous sands has rejuvenated the U.S. and Canadian oil industries. The U.S. Department of the Interior estimates that 7.4 billion barrels of oil could be extracted from the Dakotas and Montana alone.

Another 177 billion barrels of oil are available in Canada's oil sands, according to the World Energy Council.

Mr Tyner expects little change in the price of renewable fuels this summer. Although ethanol production was down earlier because of high corn prices, plenty of ethanol should be available for blending with gasoline, Mr Tyner said. The same goes for biodiesel, he added.

Two wild cards that temporarily could push gas prices higher are refinery outages and world events. Rapid spikes in Midwest gas prices the past few months have occurred when refining facilities in Indiana and Illinois experienced breakdowns.

"The biggest refinery in this area is in Whiting, Ind.," Mr Tyner said. "They have four refining streams, and if one of those four goes out we see a shortage of supply in this area and prices spike. As soon as that stream comes back online the prices come back down again."

Crude oil prices and, therefore, gas prices also rise and fall with the world economy. If the economic growth outlook improves and demand climbs this summer, prices could follow, Mr Tyner said.

One thing is for certain: There's no certainty when it comes to oil and gasoline markets.

"This year nothing has been typical," Mr Tyner said. "Normally prices go down in January but instead went up. Normally they go up in March but instead went down."

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