Frugal fill-ups coming as oil prices fall

Gas prices are poised to fall as Memorial Day approaches, a welcome change for motorists who have gotten used to seeing increases cut into their summer vacation money.

Experts who had been predicting a national average of more than $3 per gallon by Memorial Day now say prices have likely peaked just beneath that threshold. Rising supplies and concerns about the global economy have helped send wholesale gasoline prices plummeting by 22 cents a gallon since last week.

“Gasoline supplies are about as good as they’ve ever been going into the summer driving season,” said oil analyst Phil Flynn of PFGBest in Chicago.

The decline in prices is starting to filter down to motorists, but it will take several weeks for the full effects to be reflected in pump prices, which average $2.90 nationwide.

By summer, the nationwide average could be below last summer’s peak of around $2.70 a gallon, says Tom Kloza of Oil Price Information Service. In July 2008, the retail price of regular gasoline peaked at $4.11.

Economists say the coming drop in energy costs will not have a significant impact on overall consumer spending or economic growth. But motorists will feel better having a little more money to save or spend on clothes, dinner or a summer vacation.

From their peaks on May 3, oil prices have declined by 13 percent to $75.65 a barrel. Wholesale gasoline prices have declined by 9 percent to $2.21 a gallon.

Analysts were forecasting a nationwide retail average well above $3 a gallon just a few months ago. So what changed?

•The European debt crisis escalated. This undermined confidence in the strength of the global economic recovery and prompted analysts to lower their energy demand forecasts. The crisis also sent institutional investors flocking to the dollar. And these days, when the dollar goes up, the price of oil goes down.

•Supplies of gasoline have risen steadily. As of Friday, the U.S. had 222 million barrels of gasoline in storage – about 5 percent more than a year ago. Output from refineries has been growing at a faster pace than demand.

•Political unrest in oil-producing nations has been muted. Violence in Nigeria and tensions in the Middle East have been relatively minor lately, traders say.

The massive oil spill in the Gulf of Mexico has had no impact on fuel prices because it’s had only minimal impact on petroleum production, analysts say.

If pump prices fall by 22 cents per gallon – in line with wholesale decline – that will knock about $11 off the fuel bill of a typical motorist burning 50 gallons a month.