Crude oil’s sharp fall in 2018 has helped put some extra money in consumers’ pockets, in the form of falling gas prices.
According to AAA, nine states saw prices at the pump drop below $2.00 a gallon late this week, a gift for drivers this holiday season. Over the last 90 days, retail averages have dropped 83 of the past 90 days, with the downward trend expected to continue into early next year, the organization said.
Over the last two years, Russia and the cartel of the world’s largest oil producers known as OPEC have been managing the global petroleum supply, in order to rebalance the market after a prolonged and punishing oil price downturn.
While there are many factors driving down energy prices, it raises the question of whether the drop is linked to supply and demand. According to one veteran oil market watcher, a more technical factor could be behind the move.
“I think it’s mostly supply and it’s something that tends to happen between October and April when gasoline becomes the unwanted hydrocarbon,” said Tom Kloza, global head of energy analysis at fuel price service OPIS.
Kloza explained that during this period, refiners are moving to more profitable diesel, heating oil and jet fuel production, and away from gasoline.
“We just manufacture too much of it,” Kloza told CNBC’s On The Money in a recent interview, “and we just came out of a couple months where OPEC producers were producing more crude than what they pledged to in January.”
However, Kloza predicted the low prices at the pump will head back up in the springtime. “I think the bottom line is 2019 and the end of 2018 will be bookended with cheap prices, but in the middle we’re going to go considerably higher than that and you’ve got to be aware of that, ” Kloza told CNBC.
“When the baseball season’s on, you’re going to see higher prices,” he added. Nevertheless, Kloza predicted that “demand for gasoline is probably going to be flat actually for the next few years. The thing that keeps refiners going is export demand.”
With travelers still hitting the friendly skies, and airlines also deriving a benefit from cheaper fuel prices, Kloza said.
Yet flyers shouldn’t get their hopes up for cheaper travel costs.
“Lower jet fuel prices don’t mean lower airfares, we’ve learned that in the last ten years,” Kloza added.