Sun May 13, 2012
The Price We Paid: Gas Is Down, Maybe For A While
Originally published on Sun May 13, 2012 10:09 am
After spending much of the year on the rise, gas prices are now falling. The average price for a gallon of regular gas nationwide is $3.73, according to AAA. That's a drop of nearly 20 cents in one month, and industry analysts expect the price to keep falling.
You can get in a lot trouble trying to predict commodity prices, though. Phil Flynn, a market analyst at futures brokerage PFGBEST in Chicago, says there is one thing you can predict.
"I always kind of kid around that the first sign of spring in this country is when politicians start complaining about high gas prices," he says.
Sure enough, the political commentary began in early spring.
"It's as simple as this: The emperor has no clothes," House Speaker John Boehner said. "And they can't talk about their record on gas prices because gas prices have more than doubled under the president's watch."
Not to be outdone, House Minority Leader Nancy Pelosi also spoke in the spring.
"Immediately we have to stop the Wall Street speculation, which is cornering the market on oil and adding, experts say, almost 20 — 17, 18, 20 — percent to the price at the pump," she said.
Flynn says it wasn't speculating or lack of supply that drove up prices in the first place. He says it was fear of military action again Iran and the Iranian embargo, as well as countries around the globe hoarding oil.
"But now, because of a reduced risk of a conflict with Iran and the fact that OPEC has really replaced Iranian oil barrel-for-barrel, and countries across the globe have beefed up their supplies, we're now seeing the price of oil fall pretty dramatically," he says. "That's dragging gasoline prices in many parts of the country down with it."
'Fuel Reflects On Everything'
While gas prices have fallen from their high of $3.93, they haven't fallen that much. Analysts say the current $3.73 is still well within the range that causes people to change their habits. Jim Caesar of Athens, Ohio, drives nearly two dozen miles just to get cheaper gas. He says every little bit counts.
"When the price goes up, I drive less, obviously, because the fuel costs more," he says. "Fuel reflects on everything — your groceries, your utilities. Anything you do that's related to oil is a factor in that."
Robin West, chairman of PFC Energy, says the price of gas will remain a factor. In his company's analysis, prices above $3.50 a gallon begin to affect consumer behavior. He says there's a lag time before people's habits catch up with the reality of the pump.
"One of the key indicators to watch: When gasoline prices start going up, people's disposable income changes," he says. "One of the areas, for example, is the restaurant business. It gets hit very quickly because that's a clearly disposable item."
Also, drivers are still flocking toward fuel-efficient cars.
Normally, gas prices would go up for summertime, Flynn says, but this year things are different.
"The U.S. production of oil is at the highest level it's been probably since the 1960s," he says, "and that's going to give us lower gasoline prices, hopefully in the future."