Gas prices outpace cheap oil, but could fall soon

Oil prices rebounded Tuesday but remained near a 6 ½-year low, raising the prospect of dramatically cheaper gasoline after the summer driving season.

For now, a blockbuster driving season and a major refinery outage are keeping pump prices surprisingly high despite this summer's plunge in crude.

A barrel of West Texas Intermediate for September delivery rose 75 cents to settle at $42.62 after closing Monday at the lowest level since March 2009. Abundant supplies and fears of a global slowdown continue to hold down prices, which have tumbled about 30% since late June and 55% over the past year.

Yet the average national price of regular unleaded gasoline is $2.66, up from $2.58 a week ago but lower than the year-ago price of $3.45, according to AAA's fuel gauge report. An emergency shutdown last week of BP's Whiting, Ind., refinery, the largest in the Midwest, drove up gas prices in the region by 40 to 60 cents a gallon and the national average by 8 cents, figures from GasBuddy.com show. The outage is expected to last another month or so, says Tom Kloza, chief global analyst for the Oil Price Information Service.

Gas prices nationally have fallen by about 10 cents a gallon the past month. But the busiest summer driving season since 2007 and requirements in metropolitan areas for reformulated summer blends are keeping pump prices elevated, Kloza says.

"These are very high numbers for gasoline, given the price of crude," he says. Many refiners, he says, are earning gross profit margins of $50 to $60 a barrel, compared to normal margins of about $5.

By next month, after the temporary factors fade, he predicts per-gallon gas prices will fall 10 to 15 cents and slide another 50 cents or so to about $2 a gallon by the end of the year as pump prices align more closely with crude costs.

Oil prices are likely approaching their lows for the year as a result of record U.S. production, Kloza says. Despite sharp drilling rig cutbacks, U.S. producers are more efficient, keeping output high.

Meanwhile, Saudi Arabia and Iraq have ramped up production in recent months. And oil traders are betting on increased output from Iran next year, assuming a proposed nuclear deal that would lift sanctions against that country is approved by Congress.

Also holding down oil prices is an anticipated slowdown in consumption. China's devaluation of the yuan last week has raised questions about demand in that country and Greece's debt crisis has dampened economic activity in the euro zone, says Phil Flynn, senior energy analyst with the Price Futures Group.

Expectations of rising oil inventories that strain capacity at delivery hub Cushing,Okla., could further lower oil prices this fall, says Brian Busch, director of oil markets for research firm Genscape.

By the end of the year, however, Flynn  expects sharp cuts in energy company investment across the globe to help push up crude prices to $50 to $60 a barrel.