Oil prices plummet nearly 9 percent–will gas follow?
It’s hard to blame Americans consumers–and drivers, in particular–for feeling a little confused this morning. After months of steadily rising commodities prices, that had helped send gas prices soaring to nearly $4 a gallon, the price of crude oil plummeted nearly 9 percent yesterday.
So what’s going on–and with the Memorial Day kickoff to the summer driving season just a few weeks away, how will these fluctuations affect prices at the pump?
No one can really be sure what’s behind the sharp decline–but experts pointed to several potential explanations:
Americans have been using a bit less gas lately. The downturn in demand is partially in response to the high prices. Energy Department statistics showed that for the 16th straight week, gas consumption dropped in comparison to 2010. Last week saw a 3.7 percent decline from the equivalent week last year.
Plus, the run of recent bad economic news–disappointing first quarter growth numbers, a mediocre private-sector jobs report, and a spike in initial jobless benefit claims–has created fear that the economy could slide back into recession, causing prices across the board to drop. Traders may have been anticipating that outcome, and thereby making it happen.
The valuation of the dollar has been rising in currency markets. This shift, which reflects a somewhat improved picture for U.S. trade, has the effect of driving down prices for all commodities denominated in dollars.
A price bubble may be deflating a bit. Industry analysts believe that oil prices have been too high–thanks in part to overblown fears about political instability in the Middle East–so the market was due for a correction. Other than in Libya, the turmoil in that region has not had a major effect on the supply of oil on the world market.
“At those elevated price levels, you had to take into account the risk of a pullback if there were not another supply shock,” David Greeley of Goldman Sachs told the Washington Post.
Gas-price picture remains uncertain. So has the drop in oil prices brought gas prices down too?
Not yet: Yesterday, prices at the pump went up by a tiny amount, and were at $3.99 a gallon on average–still more than a dollar above where they were a year ago.
But experts say that gas prices should start falling in the next few days, likely in time for Memorial Day. “The driver can expect to see a slow erosion of prices,” Tom Kloza of the Oil Price Information Service told the New York Times, predicting that by Memorial Day, gas would be at $3.75 a gallon, and could be at $3.50 later in the summer.
And Adam E. Sieminski, chief energy economist at Deutsche Bank, echoed that view, telling the Post that prices could ultimately drop by as much as 25 percent–back to around $3 a gallon, in other words.
Still, before hauling out the Winnebago for that cross-country road trip, drivers probably should still take any predictions with a grain of salt. Prices for oil and gas are dependent on so many diverse factors–and world events, especially lately, are so fast-moving and unpredictable that forecasting how things will look months from now is a long way from an exact science.
(Gas prices remain near or above $4 a gallon at a Pembroke Pines, Fla. BP station, May 5, 2011.: J Pat Carter/AP)
- “Crude Oil Price Drops as Dollar Strengthens in Market” and related posts (news.lalate.com)
- A Quieter Day, but Oil Prices Fall Again (nytimes.com)