Breakout

Gas Prices Falling: Next Stop $3 a Gallon?

Jeff Macke
Breakout

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Mainstream media spent much of early 2012 selling consumers on the idea that $5 per gallon gas was inevitable. Not wanting to seem insensitive to genuinely cash-strapped consumers, pundits and politicos blamed Iran, energy policy and speculative "gambling" as the cause of the march towards all-time high prices at the pump.

Then, just when the outrage was truly building, crude oil and gasoline prices started moving lower. West Texas Intermediate (WTI) crude oil has fallen 10% since the start of May! According to AAA, the national average price for a gallon of gasoline has dropped to $3.76 from $3.92 in just the last one-month period. Still painfully high but well below what we were paying this time last year -$3.96 a gallon.

According to Phil Flynn, contributor to the Fox Business Network and senior energy analyst at PFG BEST, the recent decline in energy prices is only getting started. The admittedly "pro-giddy" Flynn says there's a glut of oil available and lessening demand; an economics 101 recipe for falling prices.

Flynn runs through a list of reasons why crude oil is weak, including record OPEC output, the crumbling economy in Europe, and a run of horrible economic in the U.S., culminating in Friday's atrocious jobs report.

"The question isn't why oil is falling," he says. "The question should be why it's held up so good so long?"

An even better question for Americans is how crude oil can be down 10% but gasoline prices only half that much.

Flynn says one reason for the "stickiness" of gas prices is the seasonal "summertime blends" mandated by the Government in order to cut down smog. The cleaner burning gas makes it easier to breathe but costs more than the norm. This makes gas more expensive in the summer than it is in the winter.

Seasonal blends aside, Flynn thinks pump prices are going lower.

"You're going to see more significant downside pressure on gasoline; there's a good chance we could test $3 a gallon on a national average pretty soon," he predicts. This would be nearly a 20% drop from the current price level.

Flynn gives a good list of reasons he expects a continued drop but, regardless of how we get there, lower gas prices are "exactly what we need right now with the economy struggling." It's a welcomed boost to the economy amid uncertainty here and abroad.

Whether $3 a gallon gas can save the moribund U.S. economy remains to be seen, but as we head towards peak driving season, many Americans should welcome the relief.

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