Gas prices see unusual drop

Published 5:10 pm Wednesday, June 9, 2010

As the oil spill crisis in the Gulf of Mexico looms, gas prices somehow continue to decrease throughout Alabama. The state average is hovering around $2.50.

Clay Ingram, AAA Public Relations & Marketing Manager, said crude oil prices normally increase between March and Memorial Day. Therefore, the drop during the last three has been unusual.

A few things factor into the decline, he said. The volatile stock market moving up and down has allowed several energy commodities, including crude oil, to fall in price. Ingram also said the American dollar’s recent gain in strength plays a role in the drop. Plus, people just aren’t buying gas as much.

“Our demand is just so soft right now,” Ingram said. “It increased during the spring, but it didn’t increase to the degree that it normally does. The demand is much less now compared to five to 10 years ago.”

He said the smaller demand has given AAA a cushion and allowed them to build their inventories higher than they’ve been in 20 years. Refineries are operating at about 80 percent of their normal capacity, which he said is also unusual.

The situation in the Gulf is actually strange, Ingram said, because it hasn’t had an impact on his company at all. He said two years ago, an incident like it would have substantially increased crude oil prices.

That particular well, he said, was a relatively new experimental type of well that was not contributing to their supply chain.

“It’s been a non-factor,” Ingram said. “It hasn’t had an impact at all. We’ve got this cushion to help absorb any situation like that. We’re not missing out on this oil that’s spewing out into the Gulf. That’s not oil we were counting on to be part of our supply.”

The supply hasn’t weakened as a result of the oil spill. But the demand remains soft.

A few years ago, when prices were high and the demand was strong, a lesser event would cause prices to jump, Ingram said.

“Any kind of disruption in production would typically have an impact on our prices over the last few years,” he said. “Because we have that cushion, we can absorb those things. People on Wall Street don’t panic and buy up crude oil.”

Ingram and his colleagues did not expect the current decrease in gas prices. He said it looked like the state average would edge closer to more than $3 per gallon during the summer, though it was not anticipated to go much higher.

“We may have hit our high price for the year,” he said. “I don’t want to jinx us because they say it’ll be a big hurricane season. Previous ones caused a lot of damage to refineries and wells, causing prices to jump up tremendously overnight. That would certainly change things dramatically.”

Ingram thinks there’s a chance the state average could remain at $2.50 or even decrease for the rest of the summer. He said it could even drop further throughout the fall, which is the normal trend. Drivers could even see a slight decrease in the coming weeks.