Gas Expected To Drop Below $2, Again

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The U.S. Energy Information Administration expects the price of gas to plunge to $1.99 a gallon in October, for regular grade. Further, the EIA expects it to remain below that level through February of next year, which means in some states, the price will drop back well below $2.

From April, when the price is expected to be $2.25, it will take another run up to $2.44 in June, and hold near that level through the summer.

According to the EIA Short-Term Energy Outlook:

U.S. regular gasoline retail prices this summer (April through September) are forecast to average $2.19/gallon (gal), 6 cents/gal lower than forecast in last month’s STEO and 44 cents/gal lower than last summer. U.S. regular gasoline retail prices are forecast to average $2.06/gal in 2016 and $2.26/gal in 2017.

Since gas prices are largely tethered to oil:

Brent crude oil prices are forecast to average $42/b in 2016 and $52/b in 2017. West Texas Intermediate (WTI) crude oil prices are forecast to be slightly less than Brent in 2016 and the same as Brent in 2017. The current values of futures and options contracts suggest high uncertainty in the price outlook. For example, EIA’s forecast for the average WTI price in November 2016 of $44/b should be considered in the context of Nymex contract values for November 2016 delivery. Contracts traded during the five-day period ending August 4 suggest the market expects WTI prices could range from $29/b to $61/b (at the 95% confidence interval) in November 2016.

If these forecast are correct, the states which historically have lowest gas prices should have levels return to $1.75 or below. These include South Carolina, Oklahoma, Texas, Louisiana, Mississippi, and Alabama

The drop in more expensive states like California, are not likely to bring the average price below $2.25.

Low gas prices seemed to do little to stimulate the economy earlier this year. Why stir hope for the future?