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2011 Gas Prices May Have Reached Peak

Originally Published in Trailer Life Magazine

Summer driving season usually means gasoline prices are set to climb, but the beginning of this summer season could mark the start of a significant drop in prices at the pump.

CNBC reported that gasoline hit $3.98 a gallon for the national average in mid-May and by Wednesday, it had dropped to $3.81, according to AAA.

“I think there are several trends pointing to $3.50 as the national price between now and July 4th,” Gulf Oil CEO Joe Petrowski said Wednesday on CNBC. Less demand is one factor. “Even at current prices, demand is down four to five percent, and we’re generally among the most competitive at the pump.” Gulf Oil has more than 2,500 branded retail gasoline stations in the U.S.

According to the U.S. Energy Information Administration (EIA), total motor demand has been relatively flat over the past month. Yet a MasterCard survey of retail gasoline demand found the four-week average has declined for nine consecutive weeks compared to the same period a year ago.

Rising supplies are another factor helping to drive down prices. Gasoline inventories rose sharply last week, up nearly 3.8 million barrels, according to the EIA. Gasoline inventories have jumped by more than 5 million barrels in the past three weeks, ahead of the start of the summer driving season, a time when, historically, inventories are on the decline.

Storm-related power outages at several refineries and fears that rising Mississippi River flood waters would further impede gasoline production led to a price spike earlier this month. But oil and gasoline prices have come back down as those fears have abated and supplies have risen.

“It’s unusual to see retail gasoline prices dropping during Memorial Day weekend,” said OPIS energy analyst Tom Kloza. He expects prices to continue to fall over the next week. “Most of the $4 gas is going to disappear.”

The national average for regular gasoline is already at a five-week low ahead of the holiday weekend. Yet pump prices are still about a dollar higher than a year ago. In several states, including California and New York, gas prices average more than $4 a gallon.

But some consumers’ responses to high prices may continue to be to drive less and cut back on fill-ups. That may help gasoline prices come down even further.

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