Oil Price Takes Dip, Price at Pump Remains Flat

Effect of expected refinery shutdowns offset by continuing demand destruction

WASHINGTON (Jan. 23, 2012) — The price of crude oil was up slightly today as West Texas Intermediate (WTI) crude increased by $1.25 to settle at $99.58 at today’s close of formal trading on the NYMEX. Oil markets continue to take direction from euro zone debt concerns and mounting geopolitical tension with Iran. Today brought reports that the European Union (EU) had agreed to an embargo on Iranian crude oil. This plan would be expected to remove 450,000 barrels per day of crude oil from the current European supply by July 1. A tightening of supply, such as this, would be expected to put upward pressure on crude prices. At the same time, momentum also seems to be building to address the euro zone debt crisis as EU finance chiefs met to restart talks to restructure Greek debt to avoid default. Positive global economic news, and the associated increase in demand for oil, would also be expected to pressure prices higher.

After rising sharply to begin last week’s holiday-shortened trading week, crude oil prices trended lower throughout the latter part of the week as dismal demand numbers and euro zone debt concerns—specifically with Greece—outweighed any upward pressure due to tension with Iran.  While last Thursday’s weekly Department of Energy report did show a drawdown in crude stocks, which initially sent oil prices higher, it was accompanied by bearish demand numbers—the lowest in more than ten years—and a build in gasoline stocks, which ultimately pressured prices lower.  Crude oil settled at $98.46 to end last week, the lowest price of 2012 and a decline of $2.25 from the settlement price to begin last week.

While crude oil prices have declined slightly, gasoline prices have remained relatively flat. This comes as the potential upward pressure of expected refinery shutdowns has been offset by downward pressure from continuing demand destruction.  The current national retail average price for a gallon of self-serve regular gasoline is $3.38.  Today’s price is fractions of a penny cheaper than last week, but 15 cents more expensive than one month ago and 27 cents more expensive than one year ago.  While the price of gasoline at the pump increased by more than ten cents during the first two weeks of 2012, the price over the past two weeks has been within a penny of today’s price.

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