By Kelli B. Grant
Crude prices have been as volatile as the stock market in recent days, but their overall slide may give consumers some relief at the pump in the coming weeks, and could mean lower heating costs for some this fall.
Oil prices have steadily dropped from an average $110 per barrel in April, down to an average $97 per barrel in July, according to the government’s Energy Information Administration, and they have fallen further during the recent market upheaval. Oil prices Monday were trading at roughly $84 per barrel within an hour of the market open, and are expected to slide further if the unrest in Libya continues.
“As a rule of thumb, every $1 per barrel drop in the price of crude lowers the retail price of gasoline by 2.4 cents per gallon,” says Tancred Lidderdale, a senior economist for the EIA. Consumers have already seen some results of recent volatility: the national average Monday is $3.57 for a gallon of regular unleaded, according to AAA. That’s down from $3.60 last week and $3.70 last month, although well above last year’s average $2.71. Drivers are likely to see prices follow that broader downward trend in coming weeks with drops of up to another 20 cents per gallon, says Matt Smith, a commodity analyst for Summit Energy.
The estimated 7.7 million American households that use home heating oil during the winter should also be paying attention to oil price volatility. “The two move very much in tandem,” Smith says. The New York State Energy Research and Development Authority’s survey of dealer prices noted a drop from $3.88 per gallon on July 25 to $3.80 on August 15, although prices are still roughly 33% higher than this time last year. Prices could drop further in the next few weeks, but probably not by much — international demand for U.S. exports keeps prices stable, says Ben Brockwell, a director for the Oil Price Information Service. His suggestion for homeowners: wait until just after Labor Day, then shop around to lock in a price with a supplier before seasonal demand, if not higher crude, raises prices.
Consumers’ price relief is likely to be shorter-lived than the market volatility, experts agree. Substantial worldwide demand for fuel is unlikely to keep prices low for long, although prices consumers pay at the pump are unlikely to surpass the high of $3.95 in May of this year. “I definitely think we’ve seen our peak price for 2011 on retail gasoline,” says Brockwell.