Gas and heat are cheap, but consumers may not care

Sunday, 27 Oct 2013 | 12:22 PM ET
Getty Images

It's getting cheaper for Americans to fill their tanks and heat their homes, but analysts warn that consumers are unlikely to show signs of an economic windfall.

The national average for a gallon of regular gasoline now runs $3.31, down 13 cents in a month and lower by 28 cents from the same time a year ago, according to Triple A's Fuel Gauge Report.

Traders expect prices at the pump to decline even further, for several reasons: There will be less demand for gasoline in the fourth quarter, and refineries will shift to a cheaper, winter blend. Also, the price of underlying commodities like crude oil and Rbob gasoline are likely to move lower. West Texas Intermediate closed at $97.85 on Friday, off 11.5 percent from its 52-week high, and Rbob gas finished at $2.59, off 22 percent from its high this year.

Anthony Grisanti, president of GRZ Energy, thinks prices at the pump could go as low as $3.10. That would be a 17 percent decrease from their February high of $3.74.

(More from CNBC: Will Keystone affect gas prices? No, it won't)

"I see $3.10 at the pump by year end," said Grisanti. "I see price declines in Rbob gasoline to around $2.40 to $2.50. The average amount for taxes and fees is 50 to 60 cents. That's how I get to $3.10."

Why gasoline is sliding

How low can gas go?
Gasoline drops to a 52-week low. What will put a floor under fuel, with CNBC's Jackie DeAngelis and the Futures Now Traders.

Other market participants are less optimistic. "I expect pump prices for regular gasoline to be $3.15 to $3.20 per gallon, down only slightly from the current average," said Jim Iuorio, managing director of TJM Institutional Services. "It always seems like pump prices are quick to rise as gas and oil futures climb, but slow to fall in the reverse situation."

Tom Kloza, chief oil analyst with Gasbuddy.com, said the general industry formula is for every dollar price drop in crude, the price of gas comes down about two and a quarter cents. Iuorio thinks crude prices can fall to $90 by the end of the year, indicating that gasoline could come down another 18 cents.

(More from CNBC: Eike Batista - The downfall of a $30 billion tycoon)

It's not just fuel costs that are falling—heating homes this winter could be less expensive as well. Commodity prices for natural gas and heating oil have seen a sharp drop, with natgas 16 percent lower in the last six months and heating oil down 6 percent in the last two months.

But traders warn there could be some volatility ahead.

"Three of the last four years, natgas prices have risen in the last ten weeks of the year. I expect this year to be no different," Iuorio said. "But I don't think that the rise in prices will have a significant economic impact due to the historically low prices we are seeing."

'Consumers are grumpy'

Iuorio pointed out that heating oil appears to have broken out of a well-defined uptrend, but he said that "the a decline in heating oil prices will have limited impact because only about 6 percent of the homes in the U.S. use heating oil."

(More from CNBC: Made-in-USA shipbuilding finds an unlikely ally)

Still, as energy costs come down, many are wondering if consumer spending will be up?

Kloza said it might not help as much as one might expect. "Consumers are grumpy and they're like sort of the old man, you know, that's returning a bowl of soup at the deli. They're not gonna drive more," he said. "They're not gonna take more vacations."

"It's rare historically to see natgas and heating oil to drop together at this time of year. It's a nice break for consumers of both," said Jeff Kilburg, founder & CEO of KKM Financial.

However he warned that if the U.S. experiences just a 10 percent colder winter than usual, then heating oil consumers will see a 25 percent spike in their bills.

"#NotGoodMathForConsumer." Kilburg joked.

By CNBC's Jackie DeAngelis. Follow her on Twitter @JackieDeAngelis.


  • Pump jacks and wells are seen in an oil field on the Monterey Shale formation where gas and oil extraction using hydraulic fracturing, or fracking, is on the verge of a boom, March 23, 2014 near McKittrick, California.

    Brent crude futures turned lower after Russia said top diplomats have agreed to take immediate steps toward calming tensions in Ukraine.

  • An employee wipes a TV screen in a shop in Moscow, on April 17, 2014, during the broadcast of President Vladimir Putin's televised question and answer session with the nation.

    Russian President Vladimir Putin warned of possible disruption to Europe's gas supply on Thursday, as the U.S. confirmed it would send additional military support to Ukraine.

  • A former BP employee will pay to settle allegations of insider-trading during the 2010 Deepwater Horizon oil spill.

  • Pro-Russian activists seized the main administration building in the eastern Ukrainian city of Donetsk.

    Deadly clashes in eastern Ukraine have spiked fears of all-out war in the region. So who are the armed, flag-waving rebels who appear to be behind it all?

Contact Energy


    Get the best of CNBC in your inbox

    › Learn More