Gas prices at 2015 high, still cheapest in 6 years

Motorists gas up Friday at the Shell station at Eighth Street and Broadway in Little Rock. Gas prices in Arkansas have risen 17 cents in the past month and were at an average $2.38 a gallon Friday.
Motorists gas up Friday at the Shell station at Eighth Street and Broadway in Little Rock. Gas prices in Arkansas have risen 17 cents in the past month and were at an average $2.38 a gallon Friday.

Nationally, the average price for a gallon of gasoline on Friday reached $2.60, the highest it's been this year, yet motorists are paying some of the cheapest fuel costs in six years.

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Arkansas Democrat-Gazette

Graphs showing Arkansas and U.S. gas prices.

Gasoline has risen 19 cents a gallon in the past month, according to auto club AAA's Daily Fuel Gauge Report.

In Arkansas, the price has jumped 17 cents in the past month to an average $2.38 a gallon.

After plunging for several months, crude oil prices surged in April on signs a global glut may be tempering.

The rise in retail gasoline prices "is due largely to the upswing in the price of crude," said Don Redman, a spokesman for AAA.

Oil prices have been cut in half since summer 2014 as record production from U.S. shale and OPEC production oversupplied the global market. Demand also weakened as the global economy slowed.

But in April, oil prices climbed about 25 percent -- one of the biggest spikes in crude since 2009 -- as domestic energy producers idled drilling rigs, cut spending and laid off employees in an effort to slow U.S. oil production.

The flow of domestic oil has been slow to decline -- in part because there's a delay between rig activity and well production. There were signs this week that output may be diminishing. Baker Hughes, an oil-field services company, said drillers pulled 24 rigs from service last week, dropping the count of active U.S. rigs to 679.

The nation's oil stockpile rose only 1.9 million barrels to 490.9 million during the week that ended April 24, a report released Wednesday by the Energy Information Administration said.

The agency said crude inventories in Cushing, Okla., fell more than 500,000 barrels last week to 61.7 million barrels. It was the first time the nation's biggest oil hub has seen a drop in storage since November.

"So that's a sign that the oversupply situation has probably peaked," said Phil Flynn, an energy analyst with Price Futures Group.

Oil prices fell Friday after Iraq said it exported the most crude in almost 30 years. Iraq shipped more than 3 million barrels a day last month, Bloomberg News reported.

Iraq is the second-largest producer in OPEC, which in the fall decided to maintain its production levels despite the global glut.

The decision by OPEC to maintain output was led by Saudi Arabia, the cartel's largest producer, in a fight to maintain market share. OPEC ministers are scheduled to meet again in June.

The price of West Texas Intermediate crude dropped 48 cents to $59.15 a barrel Friday on the New York Mercantile Exchange. The benchmark crude gained 3.5 percent this week. Brent crude fell 32 cents a barrel Friday to $66.46 in London. For the week, Brent crude rose 1.8 percent.

The oil price slump is hurting many energy companies, including El Dorado-based Murphy Oil Corp.

Earlier in the week, Murphy Oil recorded a first-quarter loss of $14.4 million, down from a profit of $155 million in the same period a year ago.

Lackluster earnings reports from energy companies has dampened overall corporate earnings. Average growth in earnings is forecast to grow only 1.1 percent in the first quarter, said Rob Lutts, president and chief investment officer for Cabot Wealth Management.

"A lot of overall growth has been cut down because of the big decline in energy companies," he said.

While the drop in crude prices is a problem for oil producers, it is benefiting manufacturers who use petroleum to make plastic products, Lutts said.

"A lot of high consumers of [oil] are pretty pleased," he said. "It's a shifting of wealth."

The energy administration said earlier this year that lower retail gasoline prices will result in a savings of $750 this year for the average U.S. household.

Retailers had been hoping the savings would spur consumer spending, but so far consumers seem to be holding on to their extra cash, Lutts said.

Refiners should be churning out record amounts of gasoline, turning the surplus crude into a gasoline glut, analysts said.

AAA said motorists should not see gasoline top $3 a gallon this summer.

Gasoline prices normally peak in early May as refiners end seasonal maintenance -- when they also switch to summer blends, which burn cleaner and are more expensive to refine -- and ramp up production to supply drivers between Memorial Day until Labor Day. Gasoline in May 2009 was priced below $2.60, the Energy Information Administration said.

Gasoline production in the U.S. this summer is expected to exceed last year's by more than 100,000 barrels per day. Gas consumption will average 9.2 million barrels per day this summer, an increase of 1.6 percent, according to the Energy Information Administration.

"The good news is even though prices are going up for oil," Flynn said. "[Gasoline's] sensitivity to the cost of oil isn't what it was a few years ago."

Business on 05/02/2015

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