Economic volatility continued for the second straight week on the heels of last week’s unprecedented downgrade of U.S. credit by the ratings agency Standard & Poor’s. While stocks and crude oil have been on a roller coaster ride of sorts this week, the silver lining in this uncertain economic climate has been lower gas prices. Prices at the pump have trended downward all week, which is welcome news for motorists. The national average for regular grade gasoline dropped to $3.61 Friday, down 9 cents in the past week and down 4 cents from a month ago. Prices remain 83 cents higher than year-ago prices and 50 cents below the all-time high of $4.11/gallon set In July 2008.
The Standard & Poor’s downgrade of the U.S.’s top-tier credit rating hammered financial markets throughout the week and raised concerns of an economic slowdown, and in turn a drop in oil demand. Crude oil fell nearly 10 percent on the week by Tuesday to below the pivotal $80/barrel mark on the heels of a 500-plus point drop in the stock market Monday. However, news from the Labor Department showing U.S. jobless benefit claims fell to a four-month low last week eased some concern over weak economic data that weighted on markets this week. Following a week of extreme volatility and uncertainty, crude oil closed at $85.38 Friday (just $1.50 below last Friday’s settlement), recovering back to the $85 to $90/barrel range.
In its weekly report, the U.S. Energy Information Administration (EIA) data showed crude stocks dropped 5.2 million barrels to 349.8 million barrels, in line with the American Petroleum Institute’s (API) reported 5.2 million barrel drop. The agency reported gasoline stocks fell 1.6 million barrels to 213.6 million barrels, also in line with the API’s reported 1 million barrel decline.
“While the credit downgrade has sparked turmoil and uncertainty in the financial markets, a silver lining has emerged for motorists – relief at the gas pumps,” said Martha M. Meade, Manager of Public and Government Affairs for AAA Mid-Atlantic. “In the last week, gas prices have fallen nine cents per gallon nationally and upwards of 12 cents in some areas. This week’s drop in crude oil prices could trigger a gas price drop of more than 40 cents per gallon from current levels. Should this trend continue, post-Labor Day gas prices could be in the $3.25 to $3.50 per gallon range, and perhaps as low as $3.00 per gallon in some areas.”
All eyes will continue to monitor the financial situation in the U.S. and Europe in the coming weeks. While it is difficult to project what oil markets will do in the short-term, the next few weeks will be telling as the markets continue to adjust to the U.S. credit rating downgrade and European banks work to avert another debt crisis. Should crude oil stabilize or continue to drop, motorists will continue to see much-needed relief at the gas pumps.
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