Price Drops at the Gas Pump to Continue

Crude oil trading from $40 to $45 per barrel in Sept.

Another wild week for the oil market, but prices wound up near where they started, at about $42 per barrel for benchmark West Texas Intermediate (WTI).

Oversupply fears continue to weigh on markets, with stockpiles of gasoline and other fuels well above normal, and oil output on the rise from Iran to Libya.

Don’t rule out further declines in oil sometime in coming weeks. WTI has already slipped from $50 per barrel in late June to under $40 in early August, and it wouldn’t be surprising to see the price dip as low as $35 or so. But we think any such sell-off would be relatively brief and expect WTI to trade from $40 to $45 in September.

The continued weakness in oil means gasoline prices should keep coming down. The national average price of regular unleaded fell a few pennies this week, hitting $2.12 per gallon. By the time summer ends, we look for gas to reach $2 per gallon or less, a big bargain for drivers. Diesel should also come down a bit more from its current average of $2.30 per gallon.

Natural gas prices are weakening, too, with the benchmark gas futures contract slipping to $2.77 per million British thermal units (MMBtu) this week, from $2.90 a week ago. Gas demand is robust, thanks to record consumption by gas-fired power plants that are working hard to keep the nation’s air conditioners running. But even that strong demand hasn’t been enough to push natural gas prices any higher. If the summer heat starts to moderate in coming weeks, demand will pull back and prices could slip to about $2.50 per MMBtu.