With gasoline prices dropping well below $3 a gallon in most of the state, industry analysts and observers expect the trend will continue for at least a month or two, providing some Christmas cheer to holiday travelers.
“You better believe it. I think consumers can expect to see the price at the pump tick lower as we approach the new year,” Jim Hanni, AAA of Kansas executive vice president of public affairs, said Friday afternoon.
According to GasBuddy.com, the average price per gallon in the U.S. is $2.60, about 32 cents cheaper than last month and 65 cents lower than a year ago at this time when the average price per gallon was $3.257.
Gas prices the second half of this year have been trending downward following a summer high of $3.66 per gallon.
Patrick DeHaan, Senior Petroleum Analyst – Midwest/East Coast for GasBuddy, said the lack of major hurricanes over the summer played a role but what caused prices to really drop significantly starting in late September was Saudi Arabia signaling they were voluntarily cutting crude oil prices.
“Basically, it’s been a fight over market share. Nobody’s cutting back production,” he said.
OPEC met on Thanksgiving Day to discuss falling prices and perhaps look at cutting back production but nothing happened and oil prices continued to drop even further, DeHaan said. Coupled with an increase in U.S. production to the highest levels since the 1980s, the result is a supply glut.
“It’s like a good old-fashioned price war. That’s why prices at the pump have really opened up and dropped,” DeHaan said.
According to Hanni, the average price of gasoline historically declines from fall into winter due to a number of factors, including decreased demand and a switch to winter fuel blends which are less expensive to refine and produce.
This year a third factor is plentiful global crude oil supply, which he called the primary contributing factor to falling prices nationwide.
Crude oil prices reached lowest levels in five years last week, which means cheaper gas at the pump.
To protect market share, Saudi Arabia, the No. 2 oil producer in the world, is sustaining price cuts and offering barrels of oil for sale at prices not seen in at least 14 years, Hanni said.
Those cuts could put some pressure on U.S. crude producers to cut back on production, which Hanni said is at its highest level in 30 years, until prices increase again. He said generally it costs more for U.S. producers to pull oil out of the ground here than it costs the Saudis, so domestic production could become less profitable leading to a U.S. cutback.
“But through the end of the year, we think this is going to continue,” Hanni said.
Gasoline prices in Kansas range from a high of $3.59 per gallon in Coldwater to a low of $2.09 per gallon in Coffeyville, according to KansasGasPrices.com. In Garden City, gas prices range from $2.65 per gallon to $2.79 per gallon.
DeHaan suspects prices will remain relatively low for at least the next few months, though he can’t predict how much the price at the pump will continue to drop.
“I can’t imagine it will continue forever. It may last another month or two. It depends on if OPEC is going to jump in and take action,” he said.
Today, a barrel of oil costs about $58. DeHaan thinks oil may bottom out somewhere between $53 and $57 per barrel so the price of gasoline may not go very much lower. But, he added, anything is possible.
“If you were to ask me about this six months ago I would have said no way. This has been a difficult one to see coming and it’s difficult to say when it will end, because the market seemingly is paying more attention to news than it is to supply and demand,” DeHaan said. “We’re all watching what OPEC does. If they don’t do anything the market will tank.”
According to GasBuddy, a station in Oklahoma City is selling gas at $1.99 per gallon, which is the first gas station to sell gas below $2 per gallon since July 30, 2010.
Hanni doesn’t believe many places in the nation will reach that benchmark, noting the price of crude oil would have to drop another $25 to $30 per barrel to cause the national average of gasoline to drop below $2. Currently, it sits around $2.60 to $2.65 per gallon.
Crude oil price makes up about two-thirds of the price paid at the pump for gasoline. A $10 per barrel drop in crude oil results in about a 25 cent per gallon drop in gasoline prices, generally, he said.
Kansas drivers are doing quite well right now, Hanni said.
“Kansas right now ranks No. 6 in cheapest gas at an average of $2.42 a gallon. Missouri is one, Oklahoma No. 2 two, Texas is third. Two gulf coast states are fourth and fifth,” he said. “We always like to do better, but we’re doing pretty good.”
That said, there is one nit-picking question southwest Kansans may ask — how come eastern Kansas gas prices are so much lower?
According to KansasGasPrices.com, a gallon of regular costs $2.14 in Newton, $2.15 in Salina, $2.17 in Topeka and $2.30 in Lawrence, while out west the price at the pump includes $2.99 in Hays, $2.95 in Liberal, $2.85 in Syracuse and Elkhart, and $2.79 in Lakin.
DeHaan and Hanni indicated a number of market factors could play a role, including competition and distribution costs.
“You maybe don’t have quite the competitive environment that you have in some of the larger communities where there are more retailers competing against each other,” Hanni said.
DeHaan said fluctuations in price could also depend on what source a particular gas station buys its gas from, and the timing of when the station purchased its inventory. For instance, oil prices dropped $5 per barrel this week and wholesale gas prices dropped about 15 cents.
“Think if you’re the guy in one area of Kansas that’s only buying gas every two weeks and he bought it two weeks ago at a higher price. That station doesn’t sell as much gasoline so they’re obviously going to take a little longer to pass on decreases,” DeHaan said.
Both analysts agreed on one last point about low gas prices — enjoy it while it lasts.