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Drivers are getting a bit of a break at the gas station: The national average price of regular unleaded has slipped to $3.47 per gallon, after peaking at almost $3.70 earlier this year. Fuel demand has been a bit weaker than normal for this time of year, and crude oil prices have pulled back, leading to lower costs at the retail level. That’s good news for the summer travel season and for tamping down overall inflation.
However, we don’t see gas prices dropping dramatically from here. Unless the economy really stumbles, fuel consumption should firm up a bit. And oil prices appear to have stabilized after their recent slide. So, gas should remain well above $3 per gallon on average this summer. Diesel, which has also dipped lately, could fall a bit more. But don’t expect a big drop from its current $3.82 per gallon average.
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Also, keep an eye on weather forecasts later in the summer as hurricane season ramps up. Forecasters are predicting a much more active season than normal, and if a powerful storm hits the Gulf Coast or other areas with critical refining or fuel shipping infrastructure, gas and diesel prices could briefly jump.
Benchmark West Texas Intermediate crude oil has pulled back from a peak near $90 per barrel earlier this year to a recent low near $73, largely on concerns that OPEC and its partner nations are going to start relaxing some of their export cuts and bring more oil to market.
However, officials from Saudi Arabia — the de facto leader of OPEC — and from Russia have signaled that any additional exports will be modest, and can be reversed if global oil demand does not appear strong enough to absorb them. That has helped stabilize WTI, which recently traded near $76 per barrel. We look for it to stay near $75 this summer, sometimes trading a few dollars above or below that threshold. At that price level, most energy companies producing oil in the United States should have no trouble turning a profit, but the cost of gasoline and other fuels shouldn’t be too painful for consumers.
Natural gas prices are slowly trending higher after plunging last year due to a supply glut. At $2.89 per million British thermal units, the benchmark gas futures contract is still relatively cheap. But not long ago, it was well below $2. Signs of a hot summer in the United States suggest that gas demand will be strong, as gas- fired power plants run steadily to keep air conditioners working.
The amount of gas in underground storage is still much higher than normal for this time of year, which will probably limit how much more gas prices can rise. But don’t be surprised if they creep above $3 per MMBtu soon. If summer heat waves prove severe and long- lasting, the current supply glut could get whittled down substantially in a few months.
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