Under $3 per gallon gas could soon be in Arkansas

Tumbling crude oil prices are pushing gasoline pump prices to their lowest level in years, giving optimism to U.S. and Arkansas consumers that they will be able to fill up for less than $3 a gallon this fall.

According to the U.S. Energy Information Administration’s (EIA) recent short-term energy forecast, U.S. regular gasoline retail prices fell to an average of $3.49 per gallon, 12 cents below the July average and 21 cents below the average in June. U.S. regular gasoline retail prices are projected to continue to decline to an average of $3.18 gallon by December, 12 cents lower than what was previously predicted a month ago.

Those month-to-month revisions to the U.S. Energy Department’s short-term forecast on Tuesday mean that Arkansas drivers, who typically pay nearly 20-30 cents less per gallon than the national average, could see pump prices fall below $3 a gallon in the fourth quarter for the first time since 2010 – if retailers choose to lower prices comparatively at the local level.

“The big crunch in summer travel is done and most of us can look forward to lower gas prices during the next few months,” said AAA spokesman Avery Ash. “If we can get through September without any major refinery or overseas problems, we should see more gas stations drop below $3.00 per gallon this fall.”

Typically, Ash said, gas prices from September to December are cheaper than the rest of the year as the nation’s refineries switch to cheaper blend winter fuels after Labor Day, which signals the end of the summer driving season.

And although the average price for a gallon of regular unleaded gasoline during the summer driving season was the fourth most expensive on record at $3.58 per gallon, pump prices in most parts of the country have fallen significantly during the second half of the summer with the national average 25 cents cheaper per gallon since June 28.

“It was truly a summer of contrasts with consumers paying the highest seasonal prices in years to begin the summer, but ending with the lowest prices since 2010,” Ash said. “Many drivers lucked out with it costing significantly less to fill up the car during the busiest part of the summer.”

Overall, gas prices nationally averaged $3.46 per gallon in August, compared to $3.57 (2013), $3.69 (2012) and $3.62 (2011). The national average price of gas was $3.60 per gallon in July and $3.67 per gallon in June. Currently, average U.S. price for a gallon of regular unleaded is $3.43, about 5 cents per gallon than a month ago and down 13 cents from a year ago.

ARKANSAS PRICES
Closer to home, Arkansas motorists today are paying an average of $3.19 per gallon to fill up their tank across the state, eight cents cheaper than a month ago, according to AAA’s daily fuel gauge.

Pump prices in the state’s metropolitan areas range from a low of $3.15 per gallon in the Pine Bluff area to a high of $3.19 at the Texarkana state line. Motorists in the Fort Smith and Fayetteville-Springdale-Rogers area are seeing prices at an average of $3.17 per gallon and travelers and residents in Little Rock-North Little Rock are paying an average of $3.18 a gallon to fill up their tanks.

Drivers choosing to fill up the tanks with a higher-grade of gasoline should expect to pay an average premium of $3.56 a gallon across the state. Big rig drivers and other diesel fuel users will see pump prices at about $3.67 a gallon, down three cents from a month ago.

CONSUMER IMPACT
Not surprisingly, the lower pump prices are already having a positive psychological effect on consumers according to National Association of Convenience Stores (NACS). On Tuesday, NACS released its monthly consumer fuels survey showing that optimism among U.S. drivers increased 8 percentage points from August’s 10-month low of 39%.

NACS, which represents more than 151,000 convenience stores across the U.S. with annual motor fuel sales exceeding $491 billion, conducts the monthly consumer sentiment to gauge how gas prices affect broader economic trends. In September, the NACS report said, 47% of gas consumers across the U.S. said they were optimistic about the economy, the highest level of optimism in 14 months.

Jeff Lenard, vice president of strategic initiatives for the convenience store industry, said the eight-point swing in overall in optimism from a month ago was the largest recorded since January 2013, when NACS first began its conducting its monthly snapshot of nearly 1,100 gasoline-buying consumers. Overall, nearly 9 in 10 consumers (87%) say that gas prices, which they report have dropped 20 cents per gallon over the past two months, have an impact on their feelings about the economy.

“We have seen increasingly wide swings in economic mood over the past three months as consumers continue to sort out how world and national events could affect their economic security. At the same time, it appears that what happens at the corner store with gas prices continues to play a major role with consumer sentiment,” Lenard said.

Still, Lenard hedged his bets on whether or not fuel prices nationwide will drop below $3 a gallon, a perceived psychological barrier that some economists say affects consumer spending habits. Lenard said a number of factors affect the price that consumers pay at the pump, ranging from whether crude oil prices drop stay $100 a barrel or a hurricane hitting the U.S. Gulf Coast to local factors such as taxes and transportation costs from the refinery to the pump.

Lenard said convenience store owners, which represent about 80 percent of the gasoline sold to U.S. consumers, don’t make a big profit at the pump. He said most convenience stores owners use gasoline sales as a lead-in to get consumers to buy other goods, such as fountain drinks and snacks, when they fill up their tanks.

“For retailers, they only make three cents per gallon, or about a quarter (25 cents) for a fill up,” Lenard said. “If they are not feeling good about the gas prices, they won’t go into the store. … The whole idea behind the survey is that we feel that gas prices have an enormous impact on consumers. It is not a discretionary spend that they can put off. You can’t go to the boss and say I am not coming in this week. People drive because they have to.”

OTHER ENERGY MARKET MOVES
Below are additional highlights of the EIA’s short-term energy outlook:
• Natural gas spot prices fell 15% from an average of $4.59 per million British thermal units (MMBtu) in June to $3.91 MMBtu in August even as natural gas stock builds continued to outpace historical norms. Natural gas working inventories on August 29 totaled 2.71 trillion cubic feet (Tcf), 0.47 Tcf or 15% below the level at the same time a year ago and 0.50 Tcf or 15% below the previous five-year average (2009-13). The EIA expects that the Henry Hub natural gas spot price, which averaged $3.73 per MMBtu in 2013, will average $4.46 per MMBtu in 2014 and $3.8 per MMBtu in 2015.

• Total U.S. crude oil production averaged an estimated 8.6 million barrels per day (bbl/d) in August, the highest monthly production since July 1986. Total crude oil production, which averaged 7.5 million bbl/d in 2013, is expected to average 9.5 million bbl/d in 2015, 0.2 million bbl/d higher than projected in last month’s forecast. If achieved, the 2015 forecast would be the highest annual average crude oil production since 1970.

“The growth in domestic liquids production has contributed to a significant decline in petroleum imports,” the EIA said.

• The share of total U.S. petroleum and other liquids consumption met by net imports fell from 60% in 2005 to an average of 32% in 2013. EIA expects the net import share to decline to 21% in 2015, which would be the lowest level since 1968.

In trading Tuesday, international Brent crude oil prices slid below $100 per barrel for the first time in 17 months, while U.S. crude prices moved higher following the EIA’s weekly inventory report citing lower energy stockpiles as refineries prepare to switch to winter fuel blends.

At the close of Tuesday’s session, Brent prices settled at $99.16, the lowest closing price since April 18, 2013. On the New York Mercantile Exchange, West Texas Intermediate crude for October delivery closed up nine cents at $92.75 per barrel.

Meanwhile, NYMEX natural gas futures were trading Wednesday at 3.956 per MMBtu, down slightly from Tuesday’s close at 3.978 per MMBtu.