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Gas Prices Could Head Lower For Summer

The recent run-up in oil and gasoline prices may have run its course - for now.

Thanks to easing demand from a slowing global economy and increased production from Saudi Arabia, the oil market is coming off a two-year cycle of tightening supply, according to the International Energy Agency. That's helped snap a 13 percent surge in oil prices since the start of the year.

Much of that run-up was fueled by fears of a cutoff in supplies from Iran, which is the target of U.S. and European sanctions aimed at curbing its nuclear weapons program. Those sanctions have been applied in stages since the start of the year.

But traders may have overreacted to the potential impact of those sanctions, according to Julian Jessop, chief global economist at Capital Economics.

"We expect any remaining Iran premium in prices to evaporate soon," he said. "Even if sanctions continue to tighten there is ample evidence that the countries most affected have already been able to find alternative supplies, while Iran is actually having to cut prices in order to sell its oil elsewhere."

There is also a good chance Iran will make the concessions needed to end the standoff, said Jessop.

In the meantime, Saudi Arabian oil officials are striving to make up any supply shortfall. On Friday, oil minister Ali al-Naimi said the kingdom is working with other OPEC members to boost output and keep prices from rising.

"We are seeing a prolonged period of high oil prices," Naimi said in a statement during a visit to Seoul. "We are not happy about it. (Saudi Arabia) is determined to see a lower price and is working towards that goal."

American consumers aren't happy about the run-up in gasoline prices either. Pump prices have shot up 70 cents a gallon on average since bottoming in December. They hit $4 a gallon this month. A 1.7 percent increase in March alone was the biggest driver of a 2.7 percent bump in the consumer price index, compared to last March.

But those higher gasoline prices have been offset by warmer-than-normal weather, which has helped household save on the heating bills. Falling natural gas prices have also helped cut the price of electricity, further easing the strain on household budgets.

Pump prices also look like they've peaked for the season, much as they did last May before falling through the summer months. In its latest forecast, issued this week, the Energy Information Administration said it expects the retail prices of a gallon of regular gasoline to peak in May at $4.01 and then ease to an average of $3.95 a gallon through the summer.

Gasoline prices could fall even further if crude prices continue to ease. Analysts say the outlook for crude prices depends heavily on how much further the global economy slows this year.

The IEA is predicting global oil demand will reach nearly 90 million barrels per day this year, just 800,000 barrels per day more than 2011, based on its prediction that global gross domestic product will rise by 3.3. percent this year.

Some private economist think that growth forecast may be too optimistic, given the ongoing economic slowdown in Europe and recent signs that China's rapid growth continues to slow.

U.S. gasoline demand is also easing as the domestic auto industry enjoys a rebound driven by brisk sales of new models offering higher fuel efficiency.


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