See why gas prices increased before Christmas and likely will remain higher next year

Gas prices across the United States dropped sharply, with many stations even in Michiana selling for less than $2 a gallon at times. Experts say prices that low likely won't be seen in 2017, as market pressures push up prices. (AP Photo/Kevin Liles)

Say farewell to cheap gas.

After paying less than $2 a gallon at times in 2016, drivers filling up their gas tanks to travel for Christmas likely noticed a sharp spike in gasoline prices right before the Christmas holiday. Experts say the higher prices are likely to linger well into 2017.

Indiana had the second highest increase in the average gas price at 21 cents per gallon in December, according to GasBuddy. The national average gasoline price on Monday was $2.25 with many gas stations around Michiana selling regular unleaded gasoline for $2.30 to $2.45 on Friday.

GasBuddy said consumers and motorists likely will have to spend an additional $120 to $180 or more in 2017 for gasoline.

The reason? OPEC – the Organization for Petroleum Exporting Countries – announced a production cut of 1 million barrels per day in late November that limited the amount of oil the refiners could turn into gasoline. GasBuddy, which monitors the oil and gasoline markets, said OPEC had been pumping enough oil to oversupply the market, but the cut brought oil production closer to use.

With oil and gasoline futures publicly traded based on many factors, including supply and demand, that means prices edge upward. Nationally, GasBuddy pointed out, gas prices have experienced the largest increase during the month of December in six years.

“When (OPEC) announced production cuts Nov. 30, we knew we were likely to see gasoline prices rise almost immediately. There’s never a good time to see gas prices rise, but ahead of the holidays just seems like the worst,” said Patrick DeHaan, senior petroleum analyst at GasBuddy. “Oil prices spiked after OPEC's production cut agreement was announced, pushing gasoline prices higher in 41 states."

Purdue University energy economist Wally Tyner said average daily crude oil production is currently around 96 million barrels.

“A cut of 1.5 million barrels may seem small compared with the total, but the world oil market normally is quite tight with supply and demand being about equal, so a cut of that size would mean some increase in crude oil prices,” Tyner said.

OPEC countries historically have not abided by daily production targets set by the organization, leading to some fluctuation in oil prices. More non-OPEC oil producers, including U.S. shale oil rigs, often flood the market with crude oil whenever prices reach high enough levels to make it cost effective, increasing supply and pushing down prices.

“History suggests that it will be difficult to sustain the cut for all of 2017,” Tyner said. “It should be relatively easy for the first quarter because demand and production are normally lower. The real question will be sustaining the cut through the peak driving season next summer. Time will tell.”

Based on current market conditions, Tyner expects gasoline prices to range from $2.25 to $2.55 per gallon next year – somewhat higher than 2016, but at least $1.20 to $1.50 less than the average from 2014 of $3.71.

He foresees similarly moderate price hikes for natural gas, with home heating prices expected to rise about 10 percent next year.

“The 2015-2016 winter was relatively warm and natural gas was very low in cost,” Tyner said. “The 2016-2017 winter likely will be colder and natural gas will cost more. Some companies will have purchased their gas earlier in 2016 when it was inexpensive, but later in 2017 the delivered natural gas price will be higher.”

(1) comment

ToBeAnnounced

Bummer.[sad]

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