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Glut of oil behind lower gasoline prices for Labor Day

The price of gas is expected to fall

The price of gas is expected to fall after Labor Day 2015 with reduced demand and the start of the winter gas supply. A woman refuels at a Costco gas station in Robinson Township, Pa., on July 16, 2015, near the height of the travel season when the demand for gas is high. Credit: AP

Motorists fueling up for Labor Day weekend likely will find gasoline prices the lowest since March, the result of a worldwide glut of crude oil.

Regular averaged $2.642 a gallon in Nassau and Suffolk Tuesday, according to a daily survey of stations by the motorist group AAA. That average represents a drop of 27.9 cents from a month earlier and a decline of $1.08 from a year earlier. It's the lowest average price since April 17.

Gasoline prices, however, haven't fallen as much as those for crude oil. Prices for the benchmark grade of U.S. crude have slid 24 percent from their recent peak of about $60 on June 1, to yesterday's $45.41, while gasoline has fallen by less than 10 percent, from $2.93 a gallon for regular on June 1. Crude was trading at less than $40 a barrel for a time last week.

Experts say the main reason gasoline prices haven't fallen as much as oil is that Americans have taken to the road this summer at near record numbers, enjoying lower fuel prices.

"The No. 1 reason is demand for gasoline," said Carl Larry, the Houston-based director of oil and gas for the global consulting company Frost and Sullivan. It's running 9.5 million barrels a day this summer, he said, near the 2007 record of 9.6 million a day.

There are other factors. Larry and spokesman Mike Green at the AAA's Washington office note that supplies have been constrained by a number of refinery issues around the country in recent weeks, including an outage at a BP facility in Indiana early in August, now resolved, and fires last week at refineries in Delaware and New Jersey.

Further, both men said, the drop in wholesale gasoline prices has allowed gasoline stations to increase their per-gallon profit margins.

"Stations can lower their prices at a slower pace, and it will still entice customers to enter the store because the average driver is still happy to see lower gas prices," Green said.

Kevin Beyer, president of the Long Island Gasoline Retailers Association, said, "It's given us a little bit of a breather. Everybody was working on very slim margins."

Crude's price increase in recent days was propelled by hints from OPEC that it might consider cutting crude output, and also by a new U.S. projection Monday of lower output in this country.

Crude oil accounts for 51 percent of the price of gasoline, according to the American Petroleum Institute.

Concerns about slowing demand from the economies of China and other developing nations, combined with a surge of U.S. onshore crude oil production from methods such as hydraulic fracturing and horizontal drilling, have sent oil prices skidding since June of last year, from more than $107 a barrel.

The average price of regular gasoline on Long Island last summer peaked on July 2 at $4.036 a gallon, then fell to a recent low of $2.348 on Feb. 2.

Normally, Green said, gasoline pump prices begin sliding after Labor Day weekend, as demand falls off and, beginning Sept. 16, cheaper winter gasoline begins arriving at stations.

"Traditional seasonal factors would call for price drops of 15 cents a month through the end of the year," Green said. "But the real wild card this year is the cost of crude, and no one knows what's going to happen with that."

The AAA gasoline survey is based on the lowest price available at stations that charge less for cash than credit card purchases. The record high Long Island average in the AAA survey was $4.35 a gallon set in July 2008.

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