May 24, 2011

2 Min Read

Drivers have something worth honking their horns over: Summer gasoline prices likely will remain below $4 a gallon, a Purdue University agricultural economist says.

Market conditions that caused oil prices to shoot past $110 a barrel have improved in recent weeks, pushing oil back under $100 a barrel, said Wally Tyner, an energy policy specialist. He cautioned that pump prices could rise again if oil production is interrupted.

Memorial Day weekend traditionally marks the beginning of the summer driving season.

"If crude oil stays below $100 - meaning that there are no further production disruptions in the Middle East or elsewhere and we have no further weather conditions or other factors that cause refining outages - we have seen the worst," Tyner said. "We can hope for steady or even somewhat falling prices over the next few months."

Motorists have experienced severe gas pains this spring, with pump prices in some places topping $4.25 a gallon. Prices have soared for several reasons, Tyner said.

"First, there was the conflict in Libya that sent crude oil up about $15 per barrel," he said. "That normally translates to an increase at the pump of about 40 cents per gallon.

"Shortly after that event, we had the change from winter to summer blend gasoline. That change occurs on May 1, and the impact is felt a bit before that as refineries and stations make the switch. Summer blends normally are about 10 cents per gallon higher than winter."

Domestic oil refining also hit a snag. Refineries on the East and West coasts experienced outages, and excessive spring rain and flooding slowed barge traffic on the Mississippi River, affecting Gulf Coast refineries.

"The combination of these factors sent what are called 'refining margins' off the chart," Tyner said. "Normal refining margins are about $12 per barrel. These events sent refining margins on average to about $23 for a short period, and up to $30 in the Chicago area. These extraordinary refining margins added another 26 cents or more per gallon at the pump."

All told, these issues tacked on at least 76 cents to a gallon of gas, Tyner said.

Although crude oil prices have retreated, they are still higher than a few months ago, Tyner said. Refining margins are again in the normal range, but it will take time for those lower margins to be reflected in retail prices. Consumers will continue to pay the summer gas premium of about 10 cents per gallon, he said.

"What happened this spring is not likely to be repeated," Tyner said.

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