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Economy in Brief

Will Gasoline Prices Continue to Fall?
by Tom Moeller September 13, 2007

U.S. retail gasoline prices have fallen 47 cents, or 15%, from the recent high of $3.22 in the middle of May. Momentum counts for something, but do the fundamentals behind gasoline prices argue for continued declines? The answer is a clear "no."

First off, there's that spike in crude oil prices to roughly $80 per barrel. That is up 15% from the very recent low of $70 per barrel in early August.

Higher feedstock prices seem to suggest that retail prices will rise.

Easier demand for gasoline also contributed to the gasoline price drop. That decline could continue given that gasoline prices still are up nearly 20% from yearend '06, but that is the only (somewhat flimsy) reason to expect price declines to continue.

Other fundamentals suggest higher gasoline prices, and one is the low state of gasoline inventories. Gasoline inventories are down 16% this year and most recently have slipped 7% after a brief rebuilding this past Spring and early Summer.

Lower U.S. production of gasoline and lower imports of petroleum products which usually would lift inventory did not stem the inventory decline.

So it is the combination of higher crude oil prices and lower gasoline inventories that suggest a rise gasoline prices, and possibly soon. The good, but hardly great, news is that the rise will come from a level of gasoline prices relative to all other prices which is down roughly 39% from the high in 1980.

Energy statistics are available daily in Haver Analytics' DAILY database, weekly in WEEKLY and OILWKLY, monthly/quarterly in USECON and OGJ, and annual in OGJANN. Data from Energy Intelligence are also available in OMI, NGW and WGI.

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