Gas prices could stay under $3 in 2015

Gasoline price information

If petroleum analysts at GasBuddy are right, Ohio and the rest of the United States will continue to see sub-$2 gasoline for much of 2015. The gasoline price website recently released its annual gas price outlook for 2015.

Extraordinarily high energy production from western Canada, from North Dakota’s Bakken region and the Permian Basin in west Texas have added lower cost crude and tighter competition to the global basket of crudes. Will the shale production of 2014 be repeated in 2015? Or will suppressed crude prices suspend much of the North American shale production and new drilling until further notice?

“What occurred in 2014 was nothing short of a paradigm shift in favor of North American energy producers and consumers, at the expense of OPEC and the Middle East,” said Gregg Laskoski, senior petroleum analyst for GasBuddy.

It appears that the world is indeed in the midst of a paradigm shift; and OPEC’s largest producer, Saudi Arabia, is exerting a willingness to wait out the slump in crude oil prices no matter how low they may go.

“It is not in the interest of OPEC producers to cut their production, whatever the price is,” Ali al-Naimi, Saudi Arabia oil minister, told the Middle East Economic Survey. “Whether it goes down to $60, $50, $40, $20, it is irrelevant.”

In the MEES interview, Naimi said Saudi Arabia and other Gulf oil producers would be able to withstand a long period of low crude prices, largely because their production costs were so low — at only about $4-$5 a barrel.

“We want to tell the world that high efficiency producing countries are the ones that deserve market share,” Naimi added. “If the price falls, it falls … Others will be harmed greatly before we feel any pain.”

If there’s an expectation that somehow a more robust U.S. economy will increase fuel demand and serve as a catalyst to higher crude prices in the latter half of 2015, it doesn’t appear to be a perception that’s widely held. Former Federal Reserve Chairman Alan Greenspan said last week: “The United States is doing better than anybody else, but we’re still not doing all that well. We still have a very sluggish economy.”

While 2015 should present a much more temperate gasoline price background than 2012, 2013 and 2014, the potential for springtime spikes is greatest in Illinois and the Great Lakes region. However, the severity of any spikes has been muted by the deep plunge preceding the price climb of 2015.

A first-quarter rally in gas prices is virtually guaranteed by federal (EPA) regulations that remain unchanged. From February through April, refineries will be depleting inventories of winter-blend gasoline and undergoing the annual maintenance necessary before beginning production of the more expensive, cleaner burning, (lower Reid Vapor Pressure) “summer blend”. Motorists in Virginia and Maryland will also see an increase in their respective state gasoline taxes: 5 cents per gallon in Virginia; 3 cents per gallon in Maryland.

It is the GasBuddy consensus that U.S. consumers will see fuel prices rise in the first quarter of 2015 consistent with increases of recent years. Northeastern consumers will benefit from the depressed price of Brent relative to WTI, but the area could still see some of the highest prices in the U.S. due to the decline in North Atlantic refining in recent years.

“It’s going to be difficult for Americans to face another spring-time spike in gasoline prices but hopefully, when we do see prices climb it will be much more palatable especially if we see pump prices start with a $2- instead of a $3- for most of the time,” Laskoski noted.

Analysts project the national price of gas will average $2.48 through the first quarter of 2015; $2.87 through Q2; $2.73 through Q3 and $2.49 through Q4. Consensus figures show the national average at $3 for the month of May, the only month of the year that where gas prices are projected to touch $3/gallon. For the year, GasBuddy projects the U.S. average gasoline price to be $2.64, amounting to a savings of $97 billion during 2015, versus the $465 billion motorists shelled out for gasoline in 2014.

“Towards the end of 2014, the market showed bountiful supply, strong production, and not enough demand to suck up the inventory. Much of these factors will carry over into 2015. Overall, prices at the pump will be lower than it has been in recent years, and once again the $2 sign will become a familiar number to see on street corners,” concluded Allison Mac, petroleum analyst for GasBuddy.

Of course, a number of factors will play into whether analysts are correct, including the continuing willingness of oil producers to let oil prices find their own levels, rather than cutting production to artificially raise gasoline prices.