Oil’s Getting Cheaper, So Why Isn’t Gas?by Tim Manni
As far as winning the war against high gas prices, it seems like Americans are doing almost all the right things. When the national average price of gasoline hit $4.108 this week, its highest mark ever, government data revealed drivers have cut back on their gasoline consumption to the lowest levels seen in five years. Refineries are producing less, stockpiles are growing, and there’s more than enough gas to last through the summer.
Back to basics: Ample supply, coupled with weak demand should begin to edge gas prices down. So why aren’t they?
There will always a lag in pricing to a certain degree. After a barrel of oil reached over $145 in June, prices have slowly declined, settling today at just over $137 a barrel. History reveals that prices will always rise faster than they will fall, and the raw cost of oil is only one component of the final price of a gallon of gas.
However, as demand for gasoline wanes, the demand for diesel fuel continues to grow. Diesel demand is up nearly 6% since 2007, and the national average price has risen 65%. Even our environmentally conscious ethanol fuel must be shipped out of the corn fields using diesel guzzling tractor trailers.
It’s going to take more than a 3.3% decline in US driving habits to carve a significant chunk out of gas prices. As large oil-consuming countries like China and India are reducing subsidies on gas, and their prices begin to rise, higher costs will deflate global demand, and prices should drop along with it.