Fuel Freefall Continues

Gasoline prices continue to plunge with regular grade having now broken below $2 per gallon in numerous metropolitan regions across the U.S., offering a tax break that is certainly welcome news amid the current bleak economic outlook.

The primary reason for the freefall from all-time record highs set during the summer is tumbling crude oil prices, which broke below $50 a barrel at press time for the first time in nearly two years. It’s also being driven by worries of lost demand due to the economic turmoil the U.S. and global powers are confronting, with fear of further demand destruction from contracting economies in 2009, said Brian Milne, the refined fuels editor for DTN.

Gasoline demand in the U.S. is down 3% so far in 2008, and if it continues through year-end as expected, it will mark the sharpest drop in gas consumption since 1980.

"Consumers ratcheted down driving needs as gasoline prices spiked over $4 a gallon during the summer. Puzzling many analysts now is why gasoline demand hasn’t picked up since retail prices have been more than halved since July, with the working analysis suggesting the reason is because of a combination of job losses and an American consumer stunned by the economic upheaval maintaining conservation efforts," Milne said.

Wholesale gas prices are down across the board following the Thanksgiving holiday, falling between 10 cents and 21 cents in major U.S. metropolitan market. Wholesale prices are now hovering around $1.10 per gallon to $1.40 per gallon, with the year-on-year loss actually greater than current fair market value.

"Prices at wholesale are near a bottom, if they haven’t already reached one," Milne said. "But expect retail prices to continue their slide near-term as the wholesale discounts are passed through to the pump and American consumers."


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