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$3 gas? Pump prices heading back up after oil deals

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Written by Nathan Bomey at USA Today
Click HERE to Read the Article by the Publisher.


After hitting lows earlier this year, gasoline prices are on the march upward again and are poised to approach $3 per gallon in parts of the country in early next year following multiple deals to cut oil production, analysts said.

Oil prices have jumped well above $50 per barrel after the Organization of the Petroleum Exporting Countries and several non-member states agreed to slash oil output, pointing to higher costs for U.S. motorists.

Fuel typically slumps during the low-demand winter months, but the opposite has occurred since OPEC’s output-cutting deal Nov. 30 assured investors that oil’s global glut would soon ease. After non-OPEC countries, including Russia, struck a deal Saturday to slash nearly 600,000 barrels per day, gas prices continued their upward trajectory.

Gas averaged $2.21 per gallon nationwide Monday morning, according to GasBuddy. That was up 3.8 cents from November’s average and up 19.8 cents from a year ago.

But if it heads to $3 a gallon, it could have major impact on family budgets. For those driving 12,000 miles a year, the difference can add up. Using last month’s average of 24.9 miles per gallon among new cars, as found by the University of Michigan Transportation Research Institute, the additional cost would be $381 at today’s gas prices compared to $3 a gallon.

Any sustained increase in gas prices could prove costly for the horde of Americans who abandoned fuel-efficient cars for sport-utility vehicles and pickup trucks as gas prices languished.

“With this era of low gas prices, many Americans were trading in their vehicles, selling their vehicles, buying new vehicles that have been less fuel-efficient,” DeHaan said. “If gas prices do start to inch up there’s a lot of Americans that bought a new vehicle in the last two years during this climate of low gas prices, so it may affect them more.”

Indeed, the University of Michigan study found fuel economy has fallen from 0.6 mpg from its peak of 25.5 miles per gallon in August, 2014. The gas prices increases will catch some by surprise.

The “normal seasonal rally” in the spring — when prices often tick upward as motorists increase mileage and refineries conduct maintenance — could lead to prices in the high $2 range, DeHaan said.

He said he doesn’t expect gas to hit a nationwide average of $3 at any point in 2017, although it’s “becoming more of a possibility.”

Still, with the world yet awash in plentiful oil inventory, gas would need an unexpected burst of rocket fuel to go higher than $3 per gallon in 2017.

“There’s no question that 2017 is gonna be more expensive than 2016,” said Tom Kloza, analyst at the Oil Price Information Service. “But it’s impossible to make a case for it to be anywhere near as expensive as, let’s say, 2011, 12, 13 and 14, when we regularly saw prices go above $3.”

To be sure, though, gas prices are still affordable by historical standards. DeHaan projected the national average for gasoline would be about $2.40 by the end of 2016.

About 20% of gas stations nationwide are still selling fuel for less than $2, Kloza said. Gas prices nationally have averaged about $2.11 per gallon so far in 2016, according to OPIS.

Kloza predicted that prices could average somewhere in the range of $2.40 to $2.50 for 2017.

“We are not talking about a fuel apocalypse,” he said.

If there’s a ceiling on gas prices, it might be because U.S. shale oil producers and Canadian oil sands companies are poised to speed up production with oil prices ticking upward.

An increase in North American oil production could easily offset any decrease in production among OPEC countries and the other countries that signed on to slash production. OPEC countries agreed to reduce production by about 1.2 million barrels per day while non-OPEC countries, including Russia, agreed to lower production by nearly 560,000 barrels per day.

It’s put up or shut up time now, though. OPEC countries are notorious for cheating their own quotas to squeeze out more revenue.

“Everything we’ve dealt with so far is promises as opposed to results,” Kloza said. “They tend to overpromise and under deliver.”


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Written by Nathan Bomey at USA Today
Click HERE to Read the Article by the Publisher.

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