Surprise: Gasoline Prices are Dropping!
May 13, 2010
At least there is some good news in the headlines. Gasoline prices are dropping as motorists prepare to move into the Memorial Day weekend. This is contrary to what normally happens this time every year as traditionally gasoline prices start inching up every spring. Analysts had forecast a national average of $3.00 gasoline by this time. Most motorists have gotten in the habit of seeing gasoline process rise this time every year, thus eating into their summer vacation funds. Rising supplies and concern about the global economy have helped send prices from a national average of $2.91 for regular gasoline, dropping a whopping 20 cents a gallon to $2.71 in just a few short weeks.
This is a welcome change as most Americans are having substantial difficulty with the U.S. economic woes.
Phil Flynn of PFGBest in Chicago says “Gasoline prices are about as good as they’ve ever been going into the summer months.”
Tom Kloza, Oil Price Information Service, predicts a summer low of about $2.70. This compared to a peak of $4.11 in July 2008.
Economists don’t think this drop is going to have a significant effect on consumer spending this summer. Most likely consumers will feel comfortable with the extra few pennies in their pocketbook.
What happened?
• The European debt crisis escalated and traders were less likely to be bullish on the global market. Energy analysts lowered the forecasts on global demand. Investors were summarily pushed toward the dollar as safe haven.
• Supply has risen steadily. Consumption is down. Output from remaining refineries has increased as refinery operation is now at 82 percent, up from 77 in March 2010. At the end of April 2010 the U.S. had 225 million barrels of gasoline in storage. This is about 5 percent greater than 2009 levels.
• Political upheaval in oil producing countries such as Nigeria and tensions in the Middle East has been very minor so far. This could change on a moment’s notice.
No one thinks the market is going to stay at this level very long. War in the Middle East, more political upheaval in Europe because of the debt crisis and demand will likely change these prices. Energy Information Agency’s Tancred Lidderdale says that resolution of the European debt issue, and a decline in the dollar and fresh signs of global economic growth most likely will trigger some sort of movement. “The market is very volatile”.
In any case the American consumer should enjoy this phenomenon for as long as it lasts. One thing for sure: it won’t last long. Fred Kesinger
Fred Kesinger's Blog 