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Schneider Electric predicts fall in retail gas prices to below US$2/gal.

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Hydrocarbon Engineering,

The price of crude continues to slide, ending below US$40/bbl on 24 August for the first time since 2009. The price of oil, which underpins retail gas prices, will continue to fluctuate based on global supply and demand. According to Brian Milne, Schneider Electric, several factors in particular should be highlighted for their potential influence on crude prices:

  • The Iran Nuclear Deal may still face opposition in Washington and Tehran. But if it is successfully implemented and sanctions on Iran are lifted, Iran will be poised to flood the market, exacerbating the global supply glut.
  • Senate Majority Leader Mitch McConnell and Senator Barbara Boxer are gathering bipartisan support for their proposal to sell part of the Strategic Petroleum Reserve to bolster the underfunded US Highway Trust.
  • Pressure on the US government to loosen the federal ban on oil exports continues to mount.
  • With the economy gaining steam, the Fed is expected to raise interest rates, which will put downward pressure on oil prices in the near term. However, the Fed has yet to announce a date for the rate change.
  • The undeclared price war between Saudi Arabia and US shale producers shows no signs of stopping.

Since the price of crude has a direct effect on retail gas prices, these factors will continue to drive down the price consumers pay at the pump, Milne noted.

With colder months approaching, Americans are expected to drive less and less, decreasing the demand for gas. Furthermore, since it is an El Nino year, more erratic and severe weather could amplify this phenomenon even more. El Nino is also expected to produce fewer hurricanes in the Gulf region, meaning less disruption of refineries and rigs and a continuous supply of gas.

All of these factors fuelling supply and demand for oil and gas should intensify downward pressure on retail gas prices towards the end of the year, possibly pushing them below US$2/gal, according to Milne.

Adapted from press release by Rosalie Starling

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