Smart SpendingSmart Spending

Gas could soon drop to $3 per gallon

August gas prices are the lowest in 4 years, and experts say they could keep falling.

By Money Staff Aug 6, 2014 2:03PM

This post comes from Jim Probasco at partner site Benzinga.com.


Benzinga.com on MSN MoneyGasBuddy reported this week that this year’s Aug. 1 nationwide average gasoline price of $3.509/gal is the lowest in four years.


In addition, GasBuddy Chief Oil Analyst, Tom Kloza told Benzinga that some broad sections of the country could see gasoline priced at $3 a gallon or less by the end of the year.


Expect a slight price bump

According to Kloza, lower refinery runs between now and mid-September could result in a “slight recovery” in gasoline and diesel prices.


The brief pull back, Kloza said, comes between a seasonal peak refinery run in early July and a normal traditional second peak run just before Christmas.


Recipe for cheaper gas

The combination of the second peak and the availability of cheap components used as part of the “recipe” to manufacture autumn and winter gasoline, Kloza noted, would keep prices low throughout the fall and winter months.


Kloza used normal butane as an example. This inexpensive component, which costs about $1.25/gal, has high octane and high vapor pressure and can be added to the formula after the ozone season concludes in order to help lower prices.


Location, location, location

The entire country should see lower gas prices in the fall and winter with a nationwide average of less than $3.25 per gallon sometime in Q4, Kloza said.


The southeast, much of the Midwest and Great Lakes, and even the Rockies will benefit most, Kloza predicted, with gas prices set at $3 per gallon or less for unleaded regular.


Currently, he said, GasBuddy has about 60-70 sites showing gasoline at $3 per gallon or less. He expected that number to expand by thousands once autumn gas becomes available.


Ethanol

Despite what would seem to be an obvious connection, Kloza said refinery output actually does not have much impact on ethanol production.


“Ethanol output and placement will rely on traditional gasoline demand as well as the occasional exports,” Kloza told Benzinga.


Filling fuel tank © CorbisKloza noted that ethanol was extremely cheap in forward markets with companies buying it for all of calendar 2015 for about $1.65 per gallon (in Chicago). This, he said, was about $1 per gallon below gasoline blendstock prices.


Price disparity causes

Responding to a question about the reason for the huge price disparity between the top 5 percent and bottom 5 percent of gas prices, Kloza cited two different philosophies and a number of different business plans.


Essentially, he said, big box retailers like Costco, Wal-Mart-owned Sam’s Club, and others sell gas at a very slim (pennies on the gallon) margin. They want to be competitive and drive traffic into stores.


Traditional large corporate sellers like Shell and Chevron believe they can get consumers to pay higher prices for what they promote as “more special gasoline” even though in many cases those additives represent only a tiny fraction of the actual fuel dispensed.


Finally, traditional Mom-and-Pop retailers are less competitive, but often serve unique and sometimes underserved locations.


The GasBuddy solution

Ultimately, Kloza noted, the best hedge against overpaying for gasoline is price comparison. One way to do that, of course, is with the free GasBuddy app.


More from Benzinga.com

493Comments
Aug 6, 2014 3:56PM
avatar
All they need is a  gust of wind, unrest in a foreign land or a flea to fart & gas will jump .30 cents in a week because the Wall Street Speculators will "think", "fear", etc. causing this rise. 
Aug 6, 2014 3:22PM
avatar

It's an election year, so of course the prices will drop. Democrats are paranoid right now.

Between immigration, and Obozocare, an the IRS scandal, and Benghazi.


Remember all these things folks, when you go the polls this fall. Don't vote for the incumbent just because they are a member of your party. Be aware of their voting record and what they voted for and against.


People are moaning about term limits, when WE as voters determine how long these people stay in office. Let's get rid of the "Professional" politician, regardless of party. Bring in some new blood, some new ideas.

Aug 6, 2014 4:32PM
avatar
While were on the subject of gas prices..... Why is diesel (a byproduct of petroleum refining) more expensive than gas??? It was always cheaper in the past so why is it more now??? The prices have Nothing to do with the price of oil and refining.....we are being fleeced and the trucking industry too...
Aug 6, 2014 4:15PM
avatar
Still not low enough!!!!!!!!!!!!!!!
Aug 6, 2014 3:22PM
avatar
Less than $3.00 a gallon buy years end. I doubt it, if it drops it will only go back uo due the addition of so called winter blends. 
Aug 6, 2014 3:16PM
avatar

"Gas could soon drop to $3 per gallon"


Yea.. Obama campaigned on that in 2008...

Aug 6, 2014 3:22PM
avatar
I'll believe it when I see it.  Too much international chaos & fear going on will keep the speculators happy & alive as the marekt continues to be manipulated.  3 cents per gallon is not a reduction.
Aug 6, 2014 4:02PM
avatar
LOL!! and it could be $2 or lower if oil companies wanted it to be but we price on speculation and artificially created demand. It'll never go below $3 again and not long ago we'd consider that ridiculous.....
Aug 6, 2014 3:11PM
avatar
Every time msn reports that gas prices should go down we see a spike of 20-30 cents here in OH.  2 weeks ago gas was at 3.29.  then it jumped up to 3.55 and has fallen to 3.41 this morning. 
hopefully it keeps going down but i'm not optimistic.

Aug 6, 2014 3:55PM
avatar
oh no! they will have to set fire to a refinery to get it back to $4
Aug 6, 2014 3:56PM
avatar
Still around $4 in many of the blue states. See: CA, OR, WA, NY
Aug 6, 2014 4:37PM
avatar
When Obama was elected gas was $1.82 a gallon,He is on record(video) stating that he didn,t care if gas went to$ 6.00 a gallon as long as it got their over time.Were on our way.
Aug 6, 2014 4:04PM
avatar
No way...they have us used to $3.50-$4.00...they will never allow it to lower to $3.00...
All the people crying "blood for oil" with all these wars...where's the pay-off...guess they were just fear mongering...
Aug 6, 2014 3:14PM
avatar
so if this does happen  i will break even  when the winter mix shows  up  (lose two to three  miles per gal less milage at a lesser  price ???  but it looks  good  in the  news
Aug 6, 2014 3:09PM
avatar
Too late, money is gone now, lost my car and don't have a means to go on job search, Guess my next move is to try and get some Obama money....... I hear he is handing out money to my friends from the south. 
Aug 6, 2014 4:05PM
avatar
What a laugh....mid grade is $4.25 in Ct, diesel is $4.59......
Aug 6, 2014 3:12PM
avatar
Gee-Whiz I wish those prices could be realized in the Virgin Islands. I'm presently paying 4.50 for a gallon of premium.   Oh well, I'll just go down and watch the sunset with a nice cold beer. 
Aug 6, 2014 2:31PM
avatar
I just filled up in Oklahoma for $2.99.  Gentlemen, start your hummers!
Aug 6, 2014 7:35PM
avatar
                                                    W H E R E ????????????

I SAY ELECTION YEAR BULL$HIT !!!!!!!!!!!!!!!!!!!!
Aug 6, 2014 6:11PM
avatar
Lies, how about telling the truth....taxes on gasoline can be eased by the gov't which isn't affected by anything. Secondly, producers and refineries need to keep the products at home and quite pushing our supplies overseas due to greed. No reason at all for gas to be this high, honestly more than $2.00 a gallon.
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

ABOUT SMART SPENDING

Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.

VIDEO ON MSN MONEY

TOOLS

More