Gas Prices Stabilize After Double-Digit Increases Earlier This Month

Prices at the pumps leveled off this week after seeing double-digit increases during the first half of the month, despite the fact that crude oil continues to trade above the $80 a barrel mark. The national average price of regular grade gasoline was $2.83 Friday, unchanged from last week, yet 14 cents higher since the beginning of October and 21 cents above year-ago prices. Despite recent increases, gas prices remain $1.28 below the record high set in July 2008.
What gives? As always, the price of gasoline follows fast on the heels of the crude prices. As a rule-of-thumb, a ten dollar increase in the price of a barrel of crude, translates into a 24 cent increase in a gallon of gas, and vice versa. Crude oil see-sawed throughout the week, slumping more than 4% Tuesday (slightly below $80), posting its biggest daily gain (nearly 3%) in more than a month on Wednesday, slipping $2 (nearly 2%) Thursday and settling Friday to close the week at $81.16. While a weak U.S. dollar contributed to crude oil’s rise, poor economic data out of China, a smaller-than-expected crude oil inventory increase and a slight rebound of the U.S. dollar sent crude lower. Another factor contributing to crude’s increases this week was likely the ongoing labor dispute occurring at French refineries and ports. French workers were in their second week of striking at the nation’s twelve refineries resulting potential fuel supply disruptions.
In its weekly report, the U.S. Energy Information Administration’s (EIA) data showed crude oil stocks rose 667,000 barrels to 359.9 million barrels, less than the expected 1.9 million barrel build. Gasoline stocks rose 1.2 million barrels to 219.4 million barrels, against a forecast for an inventory decline.
The Weekend
“After two weeks of steady increases, gas prices leveled off this week, with little or no movement across the nation,” said Tracy Noble, spokesperson for AAA Mid-Atlantic. “Though crude oil is still trading above $80 a barrel, gas prices have adjusted accordingly since they were first ‘shocked’ by the latest crude benchmark set in the last month. While analysts maintain consumers will not see a sizeable increase in prices at the pumps for the remainder of the year, unforeseen events such as the French labor dispute and soon-to-be Hurricane Richard could change that outlook.”
The Week Ahead
This week Tropical Storm Richard developed in the Caribbean, the 17th named storm of the 2010 hurricane season. The National Hurricane Center (NHC) expects Richard to become a hurricane by Saturday morning and points to signs that the storm will move northward near, or into, the Gulf of Mexico early next week where waters remain warm enough to support a major hurricane. Any disruption to refining facilities in the Gulf of Mexico would likely send crude oil and gas prices higher.