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Economy in Brief

Gasoline Prices Decline As Economic Momentum Fades Further
by Tom Moeller July 7, 2009

The energy markets continued to reflect the recent and developing worry that forward momentum in the U.S. economy has faded. Yesterday, the cash market price for a gallon of regular gasoline fell to $1.71 versus the daily high of $2.04 reached in the middle of June. For the full week, the average price fell to $1.84. Retail gas prices have followed these declines, but to a lesser extent. The pump price for regular gasoline fell last week to an average $2.61 per gallon, down eight cents from the high. Nevertheless prices remained up by one dollar from the December low and were at the highest level since late-October. The figures are reported by the U.S. Department of Energy and can be found in Haver's WEEKLY & DAILY databases.

Lower crude oil prices have led the decline in refined product prices. Yesterday the one-month futures price for light sweet crude oil dropped to $64.05 from an average $69.36 last week. Prices had reached a daily high of $72.68.

The weakness in energy prices is against the backdrop of soft demand. The ongoing recession reduced the demand for motor gasoline by 1.8% y/y during the last four weeks. There is good news, however. The rate of decline has moderated from the 4.8% shortfall this past autumn. Demand for distillate also is off sharply though residual fuel oil demand has moved higher. Finally, oil remains plentiful as evidenced by a 13.5% y/y rise in inventories of crude oil & petroleum products. Inventories of gasoline are flat y/y but crude oil inventories less the SPR are up by 16.8%. The figures on crude oil production and inventories are available in Haver's OILWKLY database.

Finally, natural gas prices did recover during the last two weeks, but the trend since April has definitely been sideways. Last week's average price of $3.69 per mmbtu (-72.1% y/y) was down from a recent high of $4.02. Current prices are down by two-thirds from the high reached in early-July of $13.19/mmbtu.

Time variation in the inflation passthrough of energy prices from the Federal Reserve Bank of Kansas City can be found here.

Weekly Prices 07/06/09 06 /29/09 Y/Y 2008 2007 2006
Retail Regular Gasoline ($ per Gallon, Regular) 2.61 2.64 -36.5% 3.25 2.80 2.57
Light Sweet Crude Oil, WTI  ($ per bbl.) 69.36 68.76 -51.3% 100.16 72.25 66.12
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