Gas prices going back down?

The downward trend in gas prices continued this week on the heels of expanded global economic uncertainty. The national average for regular grade gasoline dropped to $3.59 Friday, down 2 cents in the past week and down 9 cents from a month ago. Prices remain 86 cents higher than year-ago prices and 52 cents below the all-time high of $4.11/gallon set In July 2008.

Compared to last week, crude oil saw a relatively calm week with prices inching steadily upward toward the $90 a barrel mark. However, volatility resurfaced on Thursday as concerns that global economic growth will come to a standstill for the remainder of the year or, even worse, the economy could fall back into a recession and oil demand could shrink.

Crude oil fell below $80 a barrel Thursday and into Friday in response to weak U.S. data – factory activity in the U.S. Mid-Atlantic region in August fell to the lowest level since March 2009, an unexpected fall in existing U.S. home sales in July and a greater-than-expected rise in new claims for jobless benefits last week. Overseas, renewed concern that the euro-zone debt crisis in Europe could infect the region’s financial system affected crude oil prices.

The market is also watching the situation in Libya, where rebels to the west and east of the capital fought forces loyal to Muammar Gaddafi for control of oil facilities vital to winning the six-month-old civil war. Oil prices have been supported by the loss of around 1.6 million barrels per day of production in Libya since the start of an uprising against Gaddafi’s rule in February. These domestic and international factors contributed to the return of market volatility by week’s end, leading to crude oil’s close at $82.26 Friday, down nearly four percent on the week.

In its weekly report, the U.S. Energy Information Administration (EIA) data showed crude stocks rose 4.2 million barrels, primarily due to the delivery of 5.9 million barrels of oil from the Strategic Petroleum Reserve. Gasoline stocks fell 3.5 million barrels to 210.1.6 million barrels. Gasoline demand fell to 9.195 million barrels, slightly above expectations.

“U.S. financial markets continued to lose footing this week, raising concerns about the country’s economic recovery and the likelihood for a double-dip recession,” said Martha M. Meade, Manager of Public and Government Affairs for AAA Mid-Atlantic. “However, amidst economic volatility, lower prices at the gas pumps continue to be a silver lining for motorists. Whether motorists are looking to save on regular fill ups or looking to squeeze in one last summer road trip during the upcoming Labor Day weekend, continued declines in crude oil prices would fuel both scenarios.”

Analysts believe economic volatility will continue in the weeks ahead, which could cause crude oil to drop further toward the $75 a barrel mark. While lower crude oil prices would undoubtedly translate to lower prices at the pump, lack of economic stability or direction would ultimately have a negative impact on U.S. and international economies and potentially lead to a double dip recession.


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