Relief in Sight: Gas Prices Expected to Drop Soon

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Published May 13, 2011

| FOXBusiness

As Memorial Day approaches and the summer travel season heats up, road warriors nationwide are hoping for a break on gas price’s recent surge. And their wish may be coming true: Some experts expect prices at the pump to drop within the next six to 16 days thanks to lower wholesale gas prices.

“We can expect retail gas prices to come down within the coming weeks,” says Troy Green, spokesperson for AAA. “Exactly how much that will be, we don’t know. However, wholesale gasoline right now is trading significantly less than it was earlier this spring, and that bodes well for the summer driving season.” 

Wholesale gas currently stands at around $3.06 per gallon and Green says consumers typically pay 60 to 70 cents more than wholesale per gallon once costs for marketing, distribution, tax, transportation and individual station markup are factored in. 

Once retail prices begin to reflect wholesale prices, an average nationwide price of $3.66 to $3.76 per gallon is expected, according to Green. Currently, the national average for gasoline stands at $3.98 per gallon, according to the AAA Daily Fuel Gauge Report. 

Although Green is confident that prices will ease, he stresses that nothing is certain when dealing with oil or gasoline figures. 

“We have seen a seesaw affect with wholesale prices for a while now. There are just too many factors involved to say it’s completely stable. We had the fallout from the Japan earthquake and tsunami, and how many people could have predicted the civil unrest in Libya and Egypt?” 

And it’s not just instability overseas that could cause price fluctuations:  pending floods in the Mississippi Delta and New Orleans have many analysts are hedging their bets on where prices will fall. 

“There are a few issues to deal with over the short term,” says Tom Kloza, chief analyst for the Oil Price Information Service. “There are flood waters heading for a cluster of refineries from Baton Rouge to New Orleans, and at the very least we are looking at run cuts for U.S .refineries, and logistical issues. Honestly, that is the only thing keeping gas prices from really dropping 25 cents or more.”

Assuming the flood waters don’t cause any problems, Kloza says consumers living in the Rocky Mountain or Pacific time zones should expect considerable drops in prices in the next 10 days.

“Prices out West have fallen by close to 45 cents per gallon since the end of April. Moving forward, they’re going to see gas prices drop even further from around $4.25 per gallon to $4, and the rest of the country is headed in that direction.”

Six weeks from now, Kloza expects gas prices to likely be back down to typical levels for the summer driving season, around $3.25 to $3.75 nationally.

“We will wobble up a few cents and down a few cents, but we will be substantially lower in price when we get into June. We will move to more reasonable numbers all around the country. “

One reason Kloza says he’s not too concerned about the flood waters is that any flooding would pale in comparison to what was seen after Hurricane Katrina in 2005.

“The folks I talk to in shipping and supply do not believe the refineries will experience catastrophic damage,” he says. “After Katrina, we saw flooding and a storm surge, but this isn’t going to be that sort of apocalyptic event, in terms of human tragedy or tragedy to equipment.”

Although it may be difficult to bring a tanker full of oil in to port when water levels are high, it’s not enough to cause spikes in gas prices as some analysts feared, Kloza says.

“Everyone who was talking about $5 to $6 gas for the summer… I think they were inhaling the vapors. We’re going to see prices that make everyone happy.”

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