Fuel Falling Fast

Brian L. Milne, Refined Fuels Editor for DTN

Retail gasoline prices across the U.S. continue to move lower at the fastest rate in history, with consumers in many parts of the country already pulling up to pumps showing gasoline below $3 gallon.

The national average is poised to break below $3 gallon, which would be the first time it fell beneath the psychological barrier since Feb. 11.

View DTN’s Weekly and Historical Gas Prices.

While prices are declining across the U.S., some parts of the country will encounter a slower decrease in their retail prices because of ongoing supply tightness. Wholesale markets in the New York metropolitan area and in Chicago and surrounding locales while down remain supported by lower than usual supply because of regional production issues.

The decline in gasoline prices is outpacing the slide in crude oil prices, which is the primary raw material used to make gasoline as well as the largest cost component for the motor transportation fuel.

In fact, refiners are making little if any profit on converting a barrel of crude into gasoline amid the current market conditions, primarily shrinking demand. Gasoline demand so far this year is down nearly 3% against 2007, and is expected to weaken further.

The Organization of the Petroleum Exporting Countries (OPEC) are making less money these days too, and some cartel members are nervous that crude oil prices will continue to tank, further lowering the flow of dollars into their coffers. That concern triggered an emergency meeting in November by OPEC that was advanced to Friday (10/24) for the cartel’s members to discuss cutting their production rate to stop the decline in crude prices.

OPEC, which provides nearly 40% of the world’s crude oil, is expected to reduce their output when they meet, and that will slow and possibly reverse the steep price decline in wholesale markets. That, in turn, will slow the decline in retail prices, but it won’t stop the trend lower. In other words, the decline in wholesale costs has outpaced the decrease in retail prices, so more downside awaits the American consumer.

About the Author
Brian L. Milne is the Refined Fuels Editor for DTN—a leading business-to-business provider of real-time commodity information services. Milne has been focused on the energy industry for nearly 14 years as an analyst, journalist and editor. He can be reached at brian.milne@dtn.com.

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