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Will Gas Prices Keep Rising?

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Recent rises in the price of crude oil have also driven gasoline prices higher, to around $3.50 per gallon currently. Despite the recent rally, gas prices might actually be in for a decline in the coming months. 

Don't blame OPEC this time...
OPEC's policy to maintain its quota at 30 million barrels per day has driven oil prices higher in the past. But in recent months OPEC's production has increased, mainly due to the slow recovery of Libya's oil production and the sharp rise in Iraq's production. Moreover, OPEC's current oil production is higher than the agreed upon quota: As of February, output reached 31.4 million barrels per day. If OPEC continues to increase its production, this trend could push oil prices lower.

On a global scale, the International Energy Agency projects oil supply will rise by 1.7 million barrels per day during 2014. Global oil demand will increase by only 1.4 million barrels per day. Therefore, the global oil market is expected to loosen in 2014 compared to 2013. This trend is likely to also loosen the U.S. oil market. 

According to the U.S. Energy Information Administration's recent weekly update, refinery inputs in the United States have declined by 6.3% year to date to reach (as of last week) 15.112 million barrels per day. The drop in refinery oil throughput suggests the demand for oil has decline in recent weeks.

Looking forward, oil refinery capacity is likely to rise: Leading U.S. refiners such as Valero Energy (NYSE: VLO  ) and Marathon Petroleum (NYSE: MPC  ) are expected to augment their production. Valero Energy is investing in its Gulf Coast refineries, which account for roughly 56% of its total throughput volumes capacity, in order to expand its refining capacity. Marathon Petroleum plans to augment its refining capacity by 50,000 barrels a day by processing oil from Eagle Ford shale oilfields and the Utica field.

Furthermore, the company will increase its capital expenditures during the next three years to $4 billion -- nearly $1.7 billion more than in the previous three years. These developments are likely to increase refinery throughput and thus further loosen the gasoline market. 

U.S. oil supply has decreased by a slight 1.1% to 15.3 million barrels per day year to date. Despite this modest drop in oil supply, the oil market is still loose because the supply for oil is higher than the demand. Moreover, the EIA estimated the harsh winter conditions were also responsible for the decline in oil production during the beginning of 2014. As the winter clears out, oil production is likely to pick up. 

The colder-than-normal winter has raised the demand for heating oil. This, in turn, has also driven up the price of oil. Looking forward, the EIA projects the demand for liquid fuels including motor gasoline to remain flat during 2014. Since supply is expected to rise and demand to remain flat, the U.S. oil market is likely to loosen, which could bring down gasoline prices (or at the very least keep them from rising any higher).  

Bottom line
Even though oil prices are around $100, the oil market is likely to cool down in the coming months on account of the expected rise in production and stable demand. Therefore, gasoline prices are also likely to follow and decline to below the $3.50 mark.

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Read/Post Comments (13) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On March 26, 2014, at 5:37 AM, Mark1946 wrote:

    Of course gasoline prices will keep rising...and I do not blame OPEC because they do NOT set the price paid for a barrel of crude oil...Wall Street SPECULATORS do. As long as crude oil is traded as a "commodity" on the NYMEX future's market via the speculation "betting game" we will forever be robbed at the gasoline pump as their uncontrolled GREED adds at least $23.00 to the price per barrel.

  • Report this Comment On March 26, 2014, at 9:25 AM, rickshelton53 wrote:

    Not only will the price continue to raise ,,

    Get ready for higher food cost AGAIN

    We will be getting less and less for our dollar

    One day soon people will riot in the streets over the prices of it all.........................

  • Report this Comment On March 26, 2014, at 9:57 AM, fpl1954 wrote:

    As long as oil is priced in dollars and the USA continues to have wars without reason, goal, or cause absorbing 68% of our budget, the cost of oil in dollars will increase even though the real cost will decline, and the price of gasoline will continue to rise.

    If Saddam Hussein and Hugo Chavez (Chair and Vice Chair of OPEC in 2001) had achieved their goal of pricing oil in something other than dollars, highly unlikely with Saudi dominating OPEC, countries around the world would no longer have had to buy dollars to buy oil.

    That would have caused the value of the dollar to drop quickly, and all other commodities priced in dollars would have just as quickly changed to non-dollar pricing.

    That would have caused the value of the dollar to collapse, and bankrupted the USA almost overnight.

    Of course, that was the goal of Hussein in retaliation for the US going back on our Ambassador telling Saddam it was OK to invade Kuwait back in 1990, and it was the goal of Chavez because he blamed the USA for the Venezuela having signed the worst pricing agreement on the planet with the US Oil majors.

  • Report this Comment On March 26, 2014, at 10:39 AM, tigerade wrote:

    I'm looking forward to that day when gasoline-powered cars are looked at as outdated technology. And, that day may be coming sooner than most people think.

  • Report this Comment On March 26, 2014, at 11:01 AM, Barmil wrote:

    Will Gas Prices Keep Rising? Just like the sun in the morning.

    This country could have the cheapest prices right now but with offshore dealing driving the market and the artificially high pump prices by the speculators and their daily fluctuations hit the consumer before the crude ever gets to the refinery and we are paying for it at the pump that very day not weeks later when it hits the pumps.

    Isn't it amazing how there is no competition anymore between service stations?

    At one time the government broke up standard oil for this very reason now it business as usual.

  • Report this Comment On March 26, 2014, at 11:02 AM, robertwb63 wrote:

    Gas prices go up and down based on greedy speculators, it has nothing to do with supply and demand. It should be a crime for speculators to manipulate the price, we all end up paying more for things than we should.

    And it is my understanding that our refineries are just about at or at maximum refining capacity. Until we build more refineries, prices aren't going down much.

  • Report this Comment On March 26, 2014, at 12:43 PM, speculawyer wrote:

    In the long-term . . . yes. In the short-term . . . no. There is still growth to be had in the shale fields. But the oil companies have slowed down their investments and the decline rates will catch up on them. I'd say oil prices will be relatively flat until 2016.

  • Report this Comment On March 26, 2014, at 3:12 PM, opieslounge wrote:

    What a crock of crap, when they go up they say from some towel head going on a killing spree. When they go down its from less Americans driving, but these oil companies are making billions. We went to war thinking we could capitalize on the oil, someone did and there reaping the benefits. The little guy gets screwed.........AGAIN!

  • Report this Comment On March 26, 2014, at 3:35 PM, quasimodo007 wrote:

    sure the Inflated gas price at the Pump will go Up this is called "THE GREAT American RIP OFF " by the GoP congress Greedy MAFIA Privilege Crooks of wall street which gets Billions dollars TAX breaks and Now huge TAX free Paid PERKS

    what happen the over supply of LNG.Oil and Gas ? Why? Do they have Outsource these items to foreign

    Refineries to have an excuse to increased the Inflated Prices. no wonder the sanctions on evilCzar putin/hitler does not Worry about Sanctions when in Amerca we get screwed by our own Privilege CROOKS

  • Report this Comment On March 26, 2014, at 7:59 PM, McSniperliger wrote:

    Blame Wall $treet and Oil Companies who shut down for no dang reason. There is no reason why gas has to be higher than $1.89.

  • Report this Comment On March 26, 2014, at 8:00 PM, Jim85035 wrote:

    AS long as the sun rises in the east and sets in the west gas prices will rise. ON the fears that China may Fart, on the fears that there won't be a approved budget, on the fears that _________________ , you fill in the blank!

  • Report this Comment On March 26, 2014, at 8:35 PM, homebrewz wrote:

    By "lower" they must mean about $3.40/gallon.

    Petroleum manufacturers found the price per gallon people were willing to pay in 2008. The breaking point was about $4/gallon. After markets started to recover in the months afterward, the price went back to around $3, and its been about $3.50 for years now, irregardless of the price of a barrel of oil. Only when a significant drop in consumption occurs will the price go down significantly.

  • Report this Comment On March 27, 2014, at 9:52 AM, boggyg wrote:


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Lior Cohen

Lior has been a contributor for the Fool since 2012. His main interests are in commodities, and energy and materials companies.You can follow him on Twitter to stay up to date with his industry analysis. @tradingnrg

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