14 Oct Gas prices headed lower
Consumers long have complained they can’t catch a break when it comes to prices at the pump, but their luck is changing.
The recent plunge in oil prices has slammed much of the energy sector, while “the upside here is all for the consumer,” said Andy Lipow, president of the consulting firm Lipow Oil Associates LLC in Houston.
Gasoline prices have fallen faster than the price that refiners pay for crude oil. “And the consumer is benefiting from it,” he said.
He expects retail gas prices to continue to fall by at least another 20 cents a gallon.
The national average is likely to fall to $3 a gallon by Thanksgiving, Lipow said, and Texas’ statewide average is expected to decline by Thanksgiving to less than $2.85. Texas’ average price for regular unleaded was $3.08 on Friday, AAA data showed.
San Antonio’s average price for regular unleaded was $3.03 a gallon, AAA said.
The situation is no boon for refiners. While they’re paying less for crude oil, “the value of their products has declined as well,” Lipow said. And profit margins on gasoline are falling faster than the cost of crude oil, he said.
The price of crude oil is down about 20 percent from June highs, while gasoline is trading at its lowest level since 2012.
Domestic production of crude oil, which makes up about two-thirds of the cost of gasoline, is at a 28-year high, largely because of drilling in shale plays that include South Texas’ Eagle Ford.
Fears of economic weakness in Europe and China have pushed down oil prices, and “if something more severe is brewing, then the bottom in crude prices may not have arrived just yet,” senior analyst at Wells Fargo Securities’ senior analyst Roger Read said in a note to clients Friday.
While the shares of energy companies took a hit during the week, the outlook for refining companies is more generally positive.
Analysts at JPMorgan Chase said they “are favorable” on refiners heading into third-quarter earnings announcements. Their note to clients said it’s likely that shares of locally based refiners Valero Energy Corp. and Tesoro Corp. could go higher heading into third-quarter earnings announcements.
Valero Energy Corp. spokesman Bill Day said what’s key for refiners are margins — the difference between the cost of crude oil and what the market pays for fuels. “So when oil prices are falling, (and) gasoline falls in proportion,” he said, “then the margin stays the same.
“As long as that’s staying steady — and it has been — whether prices go up and down isn’t as much of a concern.”
Locally based refiner Tesoro Corp. declined to comment, saying only that it’s the company’s policy “not to discuss speculation involving the market or product yields.”
Economist Bernard Weinstein, associate director of the Maguire Energy Institute at Southern Methodist University, said, “It’s just too early to say who the winners and losers will be.
“Obviously, if consumers are paying less for gasoline, then that’s extra disposable income. If I’m a consumer saving $10 or $20 a week and I use that to buy an iPad, that’s good for the economy.”
The downside is that lower crude prices could led to declining oil production, he said, which would make a dent in energy industry employment and the nation’s gross domestic product.
Bloomberg News contributed to this report.