Lower Gas Prices Coming?

By:  Bob Adelmann
Lower Gas Prices Coming?

Gas prices, down significantly from where they were in April, may continue to slide by at least another 10 cents per gallon, perhaps more.

An October 25 article for CNBC predicted that gas prices, down significantly from where they were in April, would continue to slide by at least another 10 cents per gallon, perhaps more. That would bring the national average price, currently at $3.29 a gallon, closer to $3, with some places in the country enjoying even lower prices. Drivers in Missouri are already paying just $2.92 a gallon, and half the country “could soon find gasoline prices at the pump below $3 a gallon,” according to Tom Kloza, chief oil analyst at GasBuddy.com.

Reasons for the slide abound. Gasoline demand usually drops in the fall, things are (for the moment at least) relatively quiet in the Middle East, and Superstorm Sandy drove gas prices higher a year ago. Crude oil prices have dropped from nearly $110 a barrel in April to under $98 as of October 30, and gas prices follow crude prices closely. Many refineries have closed temporarily to change over to winter blends which means that oil inventories have risen to compensate. Cars are more efficient and people are driving them less. And then there’s the explosion in production thanks to fracking technology, which is fueling the “Great American Energy Boom”, as economist Mark Perry calls it.

But what is the real cost of gasoline? Unleaded gas first hit the $1.00 a gallon level in 1998 and, adjusted for inflation since then, gasoline today, everything else being equal, should cost $1.44 a gallon. Instead, it’s more than twice that, and consumers are feeling it. Back in 1998, consumers spent $1,000 a year on gas, or about two percent of their household income. Now they’re spending more than $2,900 a year on gas, or about four percent of their income. What’s going on?

It’s helpful to know, first of all, that out of every 42-gallon barrel of oil, only 19 gallons of gasoline are produced. The rest goes into some 6,000 other products including golf balls, toothpaste, soap, aspirin, life jackets, guitar strings, shoes, soccer balls, panty hose, and Louis Vuitton knock-offs.

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