Metro-East News

Gas prices: How low will they go and how long will the good times last?

Gas was $1.79 on Thursday at the BP station at Carlyle Avenue and West Boulevard in Belleville. One expert believes we could see prices close to $1 by the end of 2016.
Gas was $1.79 on Thursday at the BP station at Carlyle Avenue and West Boulevard in Belleville. One expert believes we could see prices close to $1 by the end of 2016. tvizer@bnd.com

The clock has been turned back 12 years on gas prices.

But with volatility in the market, experts disagree about if they’ll keep going down or if the good times are over.

Gas hit its cheapest point since 2004 last week, dropping to $1.44 at some stations across the metro-east. Then it shot up more than 40 cents Wednesday to $1.88 before coming down about a dime Thursday to $1.78 at some stations.

Most experts said they believe prices will continue to dip, potentially making it down below the $1 mark in the coming weeks. They say prices are likely to remain below $2 through the rest of 2016.

But some caution that the market could shoot up at any time with little warning.

Incredible as it sounds, we wouldn’t be shocked to see a few stations in these states as low as 99 cents a gallon.

Patrick DeHaan, senior petroleum analyst for GasBuddy

Patrick DeHaan, senior petroleum analyst for GasBuddy said the dip in prices is due to wholesalers trying to rid themselves of an over-supply of winter spec gasoline before they must switch to cleaner-burning blends for the summer months.

“As gasoline supply continues to bulge, prices continue to shrink,” DeHaan said. “Wholesale gasoline prices in the Midwest have lost more than half of their value since the beginning of the year and prices at the pump haven’t fully reflected that yet. Incredible as it sounds, we wouldn’t be shocked to see a few stations in these states as low as 99 cents a gallon.”

According to GasBuddy, the average price in the state of Illinois is $1.57 a gallon, which includes the Chicago area where gas prices are typically among the highest in the nation. Fuel is even cheaper in other parts of the Midwest including Oklahoma where it is $1.37, Indiana where it averages $1.45 and Kansas where it stands at $1.46.

Financial analyst Juli Niemann of Smith-Moore Financial Services said things could hardly be better for average Joes.

“This is better than any tax break the government could give people,” Niemann said. “It’s putting real money back in consumers’ pockets that they can use to buy other things — and they’re doing just that.”

Niemann said, while the steel industry has suffered locally — because abundant fuel has lessened the demand for the metal they produce which is used to make oil rig parts and pipelines — and the oil industry has seen its record profits fall, this is good for just about everyone else.

“We need to stop crying tears for Exxon-Mobil,” Niemann said. “They’ve been doing pretty well for a long time. But 70 percent of our economy is consumption, so it’s good for the rest of us that things are finally starting to really take off.”

People are confident enough in the financial environment that they’re not only buying big ticket items like vehicles, they’re buying the largest vehicles they can find.

This is better than any tax break the government could give people. It’s putting real money back in consumers’ pockets that they can use to buy other things — and they’re doing just that.

Juli Niemann, financial analyst with Smith-Moore Financial Services

Last week the Ford Motor Company announced it will add four new SUVs to its menu of offerings in the next few years.

“We used to sell SUVs like crazy — until gas hit about $4 a gallon,” said veteran car salesman Charlie Koehler of Auffenberg Ford in Belleville. “But once gas hit the $4 a gallon mark people switched to buying more fuel efficient cars like the Fiesta and the Focus.”

Koehler said people have been coming back to SUVs and full-sized pickup trucks in recent months. But that’s probably because of a combination of factors.

“The gas prices certainly help,” Koehler said. “But SUVs are so much more fuel efficient than they used to be. You can get 32 or 35 miles to gallon with an Escape and up to 28 miles to a gallon from an Explorer. They dropped the weight 750 pounds in the F-150 pickups, because they have to get 25 miles per gallon to meet federal standards.”

Niemann said she thinks this time of low gas prices giving an artificial boost to the economy might last for at least two or three years. She said restoration of the Iraqi oil industry and sanctions being lifted off Iran have added two new producers to an already crowded field of suppliers.

“The OPEC (Organization Of The Petroleum Exporting) countries and oil-rich countries like Venezuela are continuing to produce at an irrational rate for a time when there is an over supply,” Niemann said. “Why? Because they depend on selling oil for their economy. How else are they going to make money?”

Mike Wright, spokesman for the American Automobile Association’s Missouri chapter, agreed that gas prices are the lowest they have been since 2004, and the reason is a glut of supply. But he disagreed with the speculation that gas is likely to stay this low for a long time.

“There is an excessive amount of crude and gasoline on hand, which has accounted for oil plunging to less than $30 a barrel and the price of wholesale gas going for less than a dollar,” Wright said. “We haven’t seen prices like this going back to 2004 or 2005. But there have been some indications in the market that things could be going back up. This is something that could, literally, change overnight.”

Wright said, while the lower gas prices are nice for consumers, he doesn’t believe they’re responsible for the rush of motorists from economy cars back to SUVs.

“People aren’t rushing out to buy SUVs only because gas is cheap right now,” Wright said. “It’s partially because of the fact that vehicles across the board, including SUVs, are much more fuel efficient than they were just a few years ago because of federal mandates.”

Wright said he thinks people are driving more and buying new cars because the economy as a whole is better now than it was in recent years.

“I think it has more to do with the economic downturn we suffered, which really didn’t clear up until about 2013,” Wright said. “People were driving less and holding back buying cars, because they were worried about the economy more than they were worried about the price of gas.”

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