Gas prices will drop soon, but don't expect them to stay low for long
It’s not your imagination: prices at the gas pump have been steadily increasing over the past several weeks. In fact, according to AAA, gas prices in Tennessee have reached a three year high, averaging $2.27 a gallon statewide, 13 cents more than this time last year.
The reason is fairly simple: prices at the pump remain elevated due to strong oil prices, which settled above $62 a barrel last week (for the first time since December of 2013) as global supply levels tightened. But there is some good news: Chattanooga and Cleveland still lead the state with the lowest average price, a full seven cents lower. And experts predict the price will continue to drop as the reality of low winter demand pushes prices lower for the next month or two.
“Retail prices could drop 5-15 cents in the next month and a half, while supply outpaces demand,” said AAA’s Mark Jenkins. “The pump-price plunge has faced resistance from oil prices which have been trading at two-year highs. Oil analysts believe the oil market is somewhat inflated due to geopolitical tensions and supply concerns, but prices should decline soon.”
So, good news, right? Not so fast. Jenkins sounds a cautionary note: “Unfortunately, springtime is a springboard for prices at the pump, and we may see a 40-50 cent jump by the summer.”
The Energy Information Administration (EIA) is a leading industry group that monitors fuel prices, demand and consumption. And they warn not to expect low prices to stick around for long, as well. They expect gas prices nationwide to reach an average of $2.51 a gallon this year, 12 cents more than last year.
Part of reason is simply seasonal: prices normally rise in the spring as demand grows and supplies tighten. Spring is one of two times a year refineries go offline to conduct maintenance on their equipment, and switch from winter to the more expensive-to-produce summer blend gasoline. Historically, gas prices rise 30-75 cents during spring maintenance season, due to the supply reduction and summer-blend switch.
And part of it is weather, specifically hurricanes. Since last autumn’s maintenance season was interrupted by a string of powerful hurricanes, this spring is likely to be more active than usual for refineries, putting the price-hike on the higher end of that 30-75 cent scale.
But the biggest part is oil prices. The late-year boost was due to multiple supply disruptions like the North Sea Forties and Libyan pipeline outages, protests across Iran, and the cold snap across the U.S. increasing demand for heating oil.
Fortunately, the pipeline issues have been resolved, and the protests do not appear to be impacting oil production. This should help reduce the upward pressure on oil prices.
But even so, it’s always good to keep things in perspective. Specifically, inflation perspective. That $2.20 average pump price today is still $1.41 lower than it was ten years ago, when adjusted for inflation.
Plus, our cars and trucks are also getting the best average gas mileage in history, which gives us even more bang for our buck. Even so, don’t expect to see a $20 fill-up come around again anytime soon.
And you could always ride a bicycle. Or take public transportation. Or even walk.