Gasoline prices could keep falling
Updated 8/30/2006 10:08 AM ET
By James R. Healey, USA TODAY
Gasoline prices are falling fast and could keep dropping for months.
"The only place they have to go is down," says Fred Rozell, gasoline analyst at the Oil Price Information Service (OPIS). "We'll be closer to $2 than $3 come Thanksgiving."
Travel organization AAA foresees prices 10 cents a gallon lower by the end of next week. It reported a nationwide average of $2.84 Tuesday, the lowest since April 20.
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It's good news for consumers and the economy. Continued lower prices "may act like a tax cut" and stimulate spending, says Richard DeKaser, chief economist at National City in Cleveland. He calculates that higher energy prices the first six months cut growth of consumer spending 1 percentage point.
The U.S. average for a gallon of regular peaked this year at $3.036 Aug. 10, according to OPIS/AAA daily surveys. That's slightly under the high of $3.057 Sept. 5, a week after Hurricane Katrina battered petroleum production in the Gulf of Mexico and caused fears of fuel shortages.
OPIS' Rozell figures prices will jump again next spring.
Behind the current drop:
•The end of summer. Driving slows, reducing demand for gasoline. And federal requirements for clean air, summer-blend gasoline end next month, making gasoline cheaper to refine and import.
•Sluggish demand. Gasoline use in the first eight months of the year is up 1% vs. a year ago, less than the 1.5% to 2% growth that's typical, says Michael Morris, analyst at the U.S. Energy Information Administration. "Wholesalers are trying to get rid of product. The growth in demand for gasoline has really tapered off," he says.
Wholesale prices are falling faster than retail gasoline prices, meaning stations are making more money than when prices were $3. Wholesale prices Tuesday ranged from $1.77 to $1.79 a gallon, well below the $2-plus prices typical until recently.
•Petroleum traders, worried that prices are too high to last, are selling their holdings. That pushes prices down. They also believe hurricanes won't disrupt Gulf of Mexico production, OPIS senior analyst Tom Kloza says.
Crude oil, which accounts for roughly half the price of gasoline, ended New York trading Tuesday down 90 cents, at $69.71 a barrel. That's the first time it's closed at less than $70 since May 4.
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