July 22 (Bloomberg) -- Retail gasoline in the U.S. slid to the lowest level in almost four months as refineries boosted production to cash in on cheaper domestic oil, offering relief to consumers who saw their costs rise last month.
Pump prices averaged $3.593 a gallon yesterday, down 4.2 cents from the previous week and the lowest since March 31, data posted on the Energy Information Administration’s website show. Gasoline was 2.4 percent below 2013 levels.
Drivers are seeing relief at the pumps as U.S. refiners process a record amount of oil, reversing an increase in June that boosted U.S. consumer prices. A production boom from U.S. shale formations and Canadian oil sands pushed some domestic crudes down last month to multiyear seasonal lows versus foreign grades. Oil futures in New York and London have retreated as output in Iraq has been unaffected so far by unrest there.
“Refineries are running really smoothly right now and they’re making lots of gasoline,” Michael Green, a spokesman for Heathrow, Florida-based AAA, said by telephone from Washington. “There’s also a stalemate in Iraq that’s helped stabilize the markets because there’s less fear that rebels will disrupt oil production and exports.”
Refineries in the U.S. processed 16.6 million barrels a day in the week ended July 11, the most in Energy Information Administration data going back to 1989, and plants operated at 93.8 percent of capacity, the highest level since August 2005.
The surge in U.S. refining narrowed gasoline’s crack spread versus West Texas Intermediate crude on the New York Mercantile Exchange, a rough measure of refining profit, last week to $17 a barrel, the smallest in five months and the lowest seasonally in four years. The gap was $16.88 today. The motor fuel’s premium to the international standard Brent oil shrank to $11.89, before rebounding to $12.68 today.
Retail gasoline may “drift down slowly by a few more cents” should refineries in the U.S. continue to run at high rates and hurricanes steer clear of the Gulf, Green said. The six-month Atlantic storm season runs from June 1 through Nov. 30, with the statistical peak Sept. 10 and the most activity from mid-August to mid-October.
The second tropical system of the season formed far east of the Lesser Antilles island chain yesterday, the National Hurricane Center’s website shows.
The U.S. consumer price index increased 0.3 percent last month, matching the median forecast of 85 economists surveyed by Bloomberg, figures from the Labor Department showed today in Washington. Gasoline costs jumped 3.3 percent, the biggest gain since June 2013, accounting for two-thirds of the increase in total prices, today’s report showed.
The escalating tension between the West and Russia, the fighting in the Gaza Strip, and the violence in Iraq will temper the decline in the pump price, Andy Lipow, president of energy consulting firm Lipow Oil Associates LLC in Houston, said by telephone. Both Brent and WTI capped their first increases last week in a month on the conflicts.
“I expect the retail price to go down to about $3.55 a gallon over the next week or so,” Lipow said. “Then we’ll have to see if these events overseas result in the market turning around and costing the consumer more money.”
In the U.S. Midwest, crude demand surged 5.4 percent and refineries used oil from North Dakota and Canada to run at a record 100.3 percent of normal operating capacity, EIA data show.
Those grades are getting cheaper relative to their counterparts as hydraulic fracturing and horizontal drilling help draw record volumes of crude out of shale formations. The tight-oil boom has boosted domestic production to the highest level since 1986, turning the U.S. into the world’s largest producer.
Western Canada Select, a heavy, sour blended crude, was unchanged versus WTI at a $24.50-a-barrel discount yesterday, its lowest level for this time of year since at least 2008, data compiled by Bloomberg show. Oil from North Dakota’s booming Bakken shale formation was $7.80 a barrel below WTI.
This week, pump prices fell in all regions of the U.S., with the biggest drop seen in the Gulf Coast region, where it declined 4.6 cents to $3.394 a gallon. The smallest decrease was in the Rocky Mountain area, which lost 0.4 cent to $3.64.
The EIA collects information from about 800 filling stations as of 8 a.m. local time on Mondays.
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