Gas prices continue recent decline

Gas prices continued to decline for the second straight week, due to a combination of restored production, the switch to less-expensive autumn/winter blended gasoline and lower crude oil prices.  The national average for regular grade gasoline dropped to $3.54 Friday, down 7 cents in the past week and down 4 cents in the past month.  Prices remain 82 cents higher than year ago prices, yet 57 cents below the all-time high of $4.11 per gallon set in July 2008.

Crude oil dropped to its lowest level in six weeks following the Federal Reserve noting a bleak economic outlook and a warning of “significant downside risks,” followed by the Fed replacing $400 billion in short-term debt and long-term Treasuries in an attempt to spur growth.  Also contributing to crude oil’s decline were recession fears around the world due to Chinese economic contraction and worries about stability in the Eurozone.  A global recession would significantly affect crude oil demand, especially in theU.S., the world’s largest crude oil consumer.  A strengthening U.S. dollar also fueled the commodity’s decline this week.  As the financial climate overseas becomes more uncertain, U.S. dollars become a more attractive investment, driving up the value of the dollar.  Commodities – including crude oil – are traded in U.S. dollars, and as the dollar strengthens relative to currencies abroad, the effective price of these products for those outside of the U.S. becomes more expensive.  Oil futures become a less attractive investment and prices are pressured downward.  Crude oil closed the week at $79.85, down more than 9 percent.

In its weekly report, the U.S. Energy Information Administration (EIA) data showed crude stocks dropped 7.3 million barrels, to 339 million barrels.  Gasoline stocks rose 3.3 million barrels to 214.1 million barrels.  Gasoline demand measured at 8.858 million barrels per day (bpd), up 10,000 bpd from last week and slightly above the 2010 pace.  Most analysts believe demand is probably running about 2 percent behind last year, but they stress it has stabilized after a late-August plunge.

“Relief at the gas pump continues for motorists as crude oil prices drop and the change over to the less-expensive autumn/winter blended gasoline begins, helping to push gas prices lower,” said Windy VanCuren, Public Affairs Specialist for AAA Mid-Atlantic.  “Wholesale gas prices have dropped 40 cents a gallon since September 1, which also bodes well for consumers.” How much longer will prices drop and how much lower will they go?  Analysts believe gas prices will continue to fall in the coming weeks, into the $3.30 to $3.50 per gallon range, bringing even more relief to cash-strapped motorists.  Also of note, thefederal tax on gasoline, which is 18.4 cent a gallon, is expiring next week, on September 30.  Motorists won’t see or save a penny of that, though. If it expires, it could jeopardize the federal government’s ability to reimburse the states for projects already under way.”

Prices at the pump have fallen in recent weeks and some analysts believe the trend is expected to continue into the fall, dropping to $3.30 to $3.50 per gallon nationally.  A drop in gas prices is typical for the last 100 days of the year as demand diminishes slightly.  However, as winter 2012 approaches, analysts warn of strong updrafts for crude oil and, in turn, gasoline.  Continuing concerns in the Middle East and North Africa, coupled with the potential for tighter oil supplies due to global economic growth could send gas prices knocking on $4 per gallon by spring 2012.