Gas prices to rise despite less demand, more output

U.S. drivers such as this one on Route 130 are competing with others worldwide for gasoline. Even though gas is in lesser demand and oil production has increased in the United States, prices may approach $4 by May.
U.S. drivers such as this one on Route 130 are competing with others worldwide for gasoline. Even though gas is in lesser demand and oil production has increased in the United States, prices may approach $4 by May. (RON TARVER / Staff Photographer)
Posted: March 23, 2013

NEW YORK - The United States is increasing its oil production faster than ever, and American drivers are guzzling less gas. But you'd never know it from the price at the pump.

The national average price of gasoline is $3.69 per gallon and predicted to creep higher, possibly approaching $4 by May.

U.S. oil output rose 14 percent to 6.5 million barrels per day last year - a record increase. By 2020, the nation is forecast to overtake Saudi Arabia as the world's largest crude oil producer. At the same time, U.S. gasoline demand has fallen to 8.7 million barrels a day, its lowest level since 2001, as people switch to more fuel-efficient cars.

So is the high price of gasoline a signal that markets aren't working properly?

Not at all, experts say. The laws of supply and demand are working, just not in the way U.S. drivers want them to.

U.S. drivers are competing with drivers worldwide for every gallon. As the developing economies of Asia and Latin America expand, their energy consumption is rising, which puts pressure on fuel supplies and prices everywhere else.

The United States still consumes more oil than any other country, but demand is weak and imports are falling. That leaves China, which overtook the United States late last year as the world's largest oil importer, as the biggest influence on global demand for fuels. China's consumption has risen 28 percent in five years, to 10.2 million barrels per day last year.

"There's an 800-pound gorilla in the picture now - the Chinese economy," says Patrick DeHaan, chief petroleum analyst at the price-tracking service GasBuddy.com.

U.S. refiners are free to sell gasoline and diesel to the highest bidder around the world. In 2011, the United States became a net exporter of fuels for the first time in 60 years. Mexico and Canada are the two biggest destinations for U.S. fuels, followed by Brazil and the Netherlands.

Two other factors are making gasoline expensive:

High oil prices. Brent crude, a benchmark used to set the price of oil for many U.S. refiners, is $108 per barrel. It hasn't been below $100 per barrel since July. On average, the price of crude is responsible for two-thirds of the price of gasoline, according to the Energy Department.

Refinery shutdowns. Refineries temporarily close in the winter, when driving declines, to perform annual maintenance. That lowers gasoline inventories and sends prices higher nearly every year in the late winter and spring.

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