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For the first time in nearly five years, many gas stations across the bayou region as well as the state have dusted off and placed their large No. 1 numerals in front of their establishments.
That’s because the price of gasoline is currently as low as it has been since the spring of 2009.
Then, the statewide average stood as low as $1.95 per gallon after dipping as low as $1.65 per gallon in January of that year. Contributing factors to the low price of crude oil are a declining economy in Asia and Europe and the expansion of fracking enterprises in North America, according to AAA Fuel Analyst Don Redman. However, the biggest element is the decision by the Organization of the Petroleum Exporting Countries (OPEC) to raise production, therefore adding to supply and lowering demand and, more importantly, the price of crude oil to roughly $50 per gallon. That’s half as much as it cost just six months ago.
Those elements bode well for customers at the pump but not for those who make their livelihood on the profits of service stations.
At the Shell service station at the intersection of Grand Caillou Road and Industrial Boulevard, manager Abdul Ali hasn’t quite had to break out his large No. 1 numeral, with the price of gasoline sitting at $2.06 as of press time at his service station, but his business is inching closer and closer to his industry’s Mendoza line.
“It’s not good, and it’s not bad at the same time. We’re not making as much money as we used to, but it’s OK. We’re going to make it,” Ali said.
The manager said a positive of lower gasoline prices is that he sees between 50 and 100 additional fuel customers per day. However, his profit margin goes down at least 15 to 20 cents per gallon when the price of gasoline drops to around $2, resulting in a net negative.
“[More people visiting the station] makes up a little bit, but we’ll make it from inside sales,” Ali said.
With the state fuel cost average currently sitting at $2.04 per gallon, it hasn’t quite reached 2009 levels, but with the price of crude oil at about $50 per barrel for the first time since then, industry experts say our current low fuel prices could drop even lower.
“We’ll looking at potentially [a state average of] $1.89 [per gallon] in the near future,” Redman.
Redman expects fuel prices to continue dipping until the switch to summer-grade gasoline takes place. Summer-grade gasoline burns cleaner, is less volatile and is more expensive to refine than winter-grade gasoline. Additionally, refineries will go offline in the coming weeks in anticipation of summer-grade gasoline in order to clear inventory.
“[The refineries] are trying to deplenish their inventory of winter-grade gasoline, so they’re really not producing any new product until they can make room for the new product. Like in retail, you’re trying to get rid of your winter coats to get ready for the bikinis to come in,” explained Redman.
Refineries going offline will also reduce the supply of gasoline on the market, raising the demand and price.
Redman said refineries typically go offline between the months of March, April and May, but some do so as early as February.
The fuel analyst added that service stations typically charge between $0.25 and $1 more due to the effects of refineries going offline. After expecting the state average to dip into the $1.80s in the coming weeks, Redman predicts average prices in the spring will increase to $2.16 or $2.17.
The biggest determining factor toward the future price of gasoline, however, will be the price of crude oil on the market. According to Redman, the price of crude oil accounts for between 50 and 75 percent of the price of gasoline.
Economic consultant and oil and gas expert Dr. Loren Scott called the price of crude oil one of the most difficult things in the economy to predict.
“This is strictly supply and demand, which is usually easy to predict, but the problem is about two thirds of the oil reserves in the world are under the land where the government is running the oil company, not private companies. You never know what’s going to happen,” Scott said.
The Shell station at the intersection of Grand Caillou Road and Industrial Boulevard is among many local fuel providers with low prices at the pump.
