Gas prices at 4-year low for a Labor Day weekend

08/29/2014 5:02 PM

08/29/2014 6:14 PM

Gasoline prices are wrapping up the summer at their lowest for a Labor Day weekend since 2010.

The relief comes as gasoline demand is down 1.4 percent in the last month while gasoline supplies are up slightly. Crude oil inventories, though down from a year ago, are still more than ample to meet demand, which will soften even more after the vacation season ends.

“We’re in good shape,” said James Williams, analyst for WTRG Economics, which tracks energy markets.

On Friday, the nationwide average gas price was $3.44 compared with $3.56 a year ago, according to AAA. Prices in the Kansas City area on the Missouri side averaged $3.24, down from $3.52 a year ago. Prices were a few cents higher on the Kansas side because of higher fuel taxes.

Much of the current drop is credited to lower crude oil prices, driven down in part by the U.S. boom in petroleum production, which is up 50 percent since 2008.

So despite turmoil overseas and particularly in the oil-rich Middle East, U.S. crude production has helped keep prices in check.

Gas prices would have been even lower except for an increase in refinery costs. Refinery margins — the difference between the cost of crude oil and the wholesale price of gasoline — are now about 11 to 14 cents a gallon higher than earlier in the summer.

Kansas City area motorists are also getting a break after paying a premium compared with motorists outstate. At times this summer, area motorists were paying more than 20 cents a gallon more.

At least part of that can be attributed to a boutique fuel used here in the summer to reduce smog. It can be in short supply, and thus cost more, because only a handful of refineries make it.

But recently, the difference between area and outstate prices has decreased. Kansas City prices are now about 5 cents a gallon higher than in Columbia, for example.

Although gas consumption dropped in the last month, motorists are expected to hit the road this Labor Day weekend. AAA predicts travel will be up 1.3 percent compared with a year ago, and with 85 percent of it done in motor vehicle.

“As usual, motor vehicles will be the mode of choice,” said Mike Right, a spokesman for AAA.

The group projects 34.7 million people will journey 50 miles or more from home, the highest volume for the holiday since 2008.

The idea of lower gas prices seemed far-fetched in June as the conflict in Iraq exploded and sparked worries that the country’s exports could be curbed. But oil markets calmed down as the conflict didn’t reach the southern part of the country where most of the country’s oil production exists.

Crude oil prices have since fallen about $10 a barrel, or enough to reduce gas prices by 25 cents a gallon. The Energy Information Administration said in a report Thursday that market perception of reduced risk in Iraq and reports of rising oil exports from Libya had helped push oil prices down.

Future flare-ups could still cause oil prices to surge again, but the U.S. has built an advantage that could cushion the blow.

Williams, of WTRG, believes the reaction to the Iraq conflict was more muted than it would have been in past years because of rising U.S. oil production.

As a result, the net amount of crude oil and other petroleum products that need to be imported has fallen to 28 percent of U.S. demand — less than half what it was a few years ago. Imports’ share of U.S. needs are predicted to reach as low as 22 percent next year.

Williams said the raw economics of producing more oil and the psychological benefit of knowing we aren’t as dependent on other countries has provided a cushion for oil shocks.

“We’re in a better position because we’re producing more oil,” he said.

To reach Steve Everly, call 816-234-4455 or send email to severly@kcstar.com.

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