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Gas prices are below $3.50 nationally for first time since February

Thursday, July 4, 2013 | 12:05 p.m. CDT

Gasoline prices are on a summer slide, giving U.S. drivers a break as they set out for the beach and other vacation spots for the Fourth of July weekend.

The national average for a gallon has fallen for 21 days straight and is now below $3.50 for the first time since February. Gas prices in Columbia ranged on Thursday from a low of $3.19 to a high of $3. 31 at one station, according to Missourigasprices.com.

The reason for the decline: Oil prices have been relatively stable, and refineries are turning out more gasoline after completing springtime maintenance.

The drop may be interrupted temporarily because oil prices spiked Wednesday on fears that the turmoil in Egypt would disrupt the flow of crude in the Mideast. Analysts, however, don't expect a sharp increase at the pump, because global oil supplies are ample and U.S. refineries are producing plenty of gas.

Average drops 16 cents in two months

The national average price of a gallon is $3.48, according to AAA, OPIS and Wright Express. That is 16 cents below its post-Memorial Day high of $3.64 on June 10.

For much of the nation, the slide has been gradual. But for some drivers, especially in the Midwest, it has been a roller-coaster ride. Prices shot up there early last month because of refinery maintenance work and a fire, then plunged after the refineries ramped back up.

Tom Kloza, chief oil analyst at GasBuddy.com, predicted the national average will hover between $3.30 and $3.60 for the rest of the summer. That would be somewhat lower than the last two summers, when gasoline prices spent part of the season above $3.70 per gallon.

Oil prices shot up Wednesday above $101 per barrel, the highest since May 2012, as the crisis in Egypt deepened. Egypt is not a major oil producer but controls the Suez Canal, a major shipping lane for Middle Eastern crude.

While analysts are not expecting a resulting surge in gasoline prices, they could rise quickly if the Mideast unrest does disrupt oil supplies. Gas could also climb if a hurricane threatens the heart of the refining industry along the Gulf Coast.

This year's early summer decline, while welcome, is smaller than the seasonal drops of the last two years, when gas prices also fell between Memorial Day and Independence Day. Gasoline is 15 cents more expensive than it was last year at this time.

Refinery maintenance boosts prices in spring

Gas prices typically rise in late winter or early spring when refineries perform maintenance and switch from making winter gasoline blends to the more complex summer blends required for clean-air rules. When the nation's refineries aren't operating at full strength, supplies drop and prices rise. Once the maintenance is done, output rises and prices fall.

"When refineries go down it can create immediate and severe havoc," Kloza said. "It's a very shallow distribution system, quick to fill and quick to empty."

That's what happened in the Midwest earlier this year. A fire broke out at a Marathon refinery in Detroit in late April while maintenance was underway at an Exxon Mobil refinery in Joliet, Ill., and a BP refinery in Whiting, Ind.

Prices soared above $4 per gallon in parts of Ohio, Michigan, Wisconsin and Indiana. As the refineries recovered, prices quickly fell. By July 3, Ohio prices were $3.33.

Regional spikes and plunges are likely to happen more often in coming years. The number of U.S. refineries has shrunk by a quarter since 1993 to 143, but the nation's refining capacity has grown 18 percent since then. The remaining refineries are getting bigger, so if one goes down, it's a bigger shock to the system.

Cost varies by state

Some U.S. drivers will be paying a little more because of higher gasoline taxes that went into effect July 1. California and Maryland taxes rose 3.5 cents per gallon, Connecticut's climbed 4 cents, and Wyoming's 10 cents. Virginia drivers are getting a break — gas taxes there are falling 6.4 cents.

Gasoline taxes account for the biggest difference in pump prices for U.S. drivers. Local, state and federal taxes vary from nearly 70 cents per gallon in New York, California and Hawaii to half that in Missouri, New Jersey, Oklahoma, South Carolina and Virginia, according to the American Petroleum Institute, the industry's chief lobbying group.

 


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Comments

Corey Parks July 4, 2013 | 10:25 p.m.

Gas prices have dropped in the past week as oil prices have been rising to above 100 a barrel for the first time in a long time. Hmmm

(Report Comment)
Ellis Smith July 5, 2013 | 6:07 a.m.

@Corey:

These situations occur. They also occur with mined products (metals, non-metallics).

Crude oil isn't the same as gasoline, diesel fuel or other refined petroleum products. Gasoline isn't gasoline until it IS gasoline (that is, until the oil has been refined).

Word is that they overestimated current retail demand, and retail sales price is down only temporarily. We can expect retail price to increase, unless the crude price drops. Also, any unplanned refinery shutdowns will cause temporary price increases.

(Report Comment)
frank christian July 5, 2013 | 8:24 a.m.

Fox News discussed the U.S. becoming energy independent within less than a decade, with supplies located here at home. We now have twice as much oil and three times the NG in reserve as previously accounted for. Several were interviewed on the subject and last (don't know who) stated, "Yes, we can become energy independent in less than a decade, if we can get the policies right!"

This means, get the governmental environmentalists out of the way.

(Report Comment)
Ellis Smith July 5, 2013 | 9:58 a.m.

We are now less dependent on Saudi production than we were, and that's a good thing, because while the Saudis have been reliable and tend to keep international crude oil prices from going higher*, it's bad to be too dependent on a single source.

I want to go back to refining, because that's a serious bottleneck: we haven't built a new refinery in decades.

1-The output(s) of a refinery in terms of products and their shares of total production is NOT fixed: the refinery can and does seasonally adjust outputs of fuels to correspond to seasonal demand. What has recently happened with lower gasoline prices is that this year demand hasn't increased as much as in prior years. That's good.

2-A refinery produces energy products (along with lubricants, chemical feedstocks, etc.), but a refinery is also a serious USER of energy: in the physical and chemical world you don't get something for nothing. :)

*- They do that by arbitrarily increasing the volume of crude oil.

(Report Comment)

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