Oil Prices Tumble Again, Hurting Drillers But Helping Drivers
Monday, August 3, 2015
Oil prices took another drop Monday, rattling the stock market and putting more downward pressure on gasoline prices.
For oil companies, the price slump is hitting hard at profits, but for U.S. motorists, the downshift has brought savings at the pump.
"Oil prices took a pretty strong hit in the month of July," said Chris Christopher, an economist for IHS Global Insight, a forecasting firm. But August is off to an even rougher start, with price of a barrel of West Texas Intermediate oil dropping another 3.6 percent Monday at 4:00 p.m. to $45.43. One year ago, the price was about $93.
With prices off so dramatically, many energy companies already have announced major layoffs, causing economic pain in "places like West Texas, North Dakota — where people depend on the energy markets for their livelihood or they depend on people who depend on the energy market for their livelihood," Christopher said. "These places have suffered significantly."
But the oil industry's pain is the consumer's gain. The average national price per gallon of regular gasoline is now $2.65, down about 85 cents a gallon compared with last year at this time, according to AAA, the auto club.
The prices can vary widely. Californians still pay the most by far, an average of $3.73, AAA says. But in most states, prices are much lower, especially in the Southeast. In Alabama, the statewide average is $2.26.
"Fill it up," said Mary Jenkins, who drives about 50 miles from her home in Union Springs, Ala., to a gas station on the east side of Montgomery. She was in town to do some shopping — and to take advantage of the cheaper gas prices. "Gas is like $2.50 something (at home) compared to this $2.17," she said while topping off her tank for $42.
Gas is cheap in Alabama in part because of the low fuel taxes. And it helps to be a neighbor of Louisiana, where many of the largest oil refineries are located.
But no matter where you live, gas prices are lower than last year because of oil's plunge during the second half of 2014. The drop was particularly steep into the winter of 2015, slumping to about $44 a barrel in January.
Prices perked up with the weather — to around $60 a barrel by mid-June. But it didn't last. Supplies of oil, boosted by U.S. shale-oil production, kept exceeding demand, especially as China's economy slowed this summer.
Now there's another factor: if Congress approves a nuclear deal with Iran this fall, that nation could start selling more oil in an already glutted market.
In a report Friday, the web site Gasbuddy.com predicted prices would keep falling. "Before Christmas, as many as 20 states could have average gas prices below $2 per gallon, as the national average for December slips to $1.98," it said.
Will Speer, a senior petroleum analyst for GasBuddy, noted that demand for gasoline drops in the autumn and winter.
"At the same time, refining margins are strong and with the switch to cheaper winter grade gasoline in the coming month, ample supply of discounted gasoline will be available to motorists. It's the perfect recipe for savings at the pump till the end of the year," Speer said.
Although oil producers will be hurt by the lower prices, many gas station owners may actually do better. For example, Deepak Ahuja, who runs a convenience store north of Montgomery, sells gas for just $2.15 a gallon.
When gas prices are low, his profit rise. Why?
"It's even better for us because they have even more money to spend inside the store," he said. "We don't make much money on the gas side, but we make money selling sodas and snacks inside the store."
Copyright 2015 NPR. To see more, visit http://www.npr.org/.
To view PDF documents, Download Acrobat Reader.