Are gas prices headed for a decline?

By Johnny Jackson


Gas at 40 cents per gallon cheaper?

It is a possibility, according to officials.

In the coming weeks, average gas prices could dip by as much as 38 cents per gallon nationally, said Neil Gamson, an economist with the Energy Information Administration.

According to Gamson, the unexpected and dramatic drop in crude oil prices last week should soon affect the price at the pump. "We should see some drops in the gas prices too."

He said the price at the pump typically drops about 2.3 cents per gallon for every dollar decline in crude oil prices. If crude oil prices remain relatively low, or keep falling over an extended period of time, consumers could see significantly cheaper gas prices.

Last week, however, the average price of crude oil decreased by nearly $16 per barrel, from $145.16 on July 14, to $129.43 on July 17, while prices at the pump sustained record highs.

The difference in the prices is the result of the flow of sales, the effects of which can take weeks to reach consumers directly. Wholesalers purchase crude oil and, in turn, sale fuel products to local retailers who sale gas to everyday consumers.

"Retail prices don't always react to crude prices, they react to wholesale prices," said Greg Laskoski, spokesman for AAA Auto Club South. "Wholesale prices are below what the market prices would trade for. And ordinarily, it takes a couple of weeks for retail prices to follow."

According to Laskoski, record-high gas prices this summer have a direct link to last year's economic downturns, namely the value of the U.S. Dollar. "We think that the prices that we see now, these things do stem from August 2007 with the lower interest rates by the Federal Reserves that effectively weakened the U.S. Dollar," he said. "Those things are closely tied to each other."

Gas prices are still more than a dollar higher per gallon nationally than this time a year ago. Nationwide, diesel has temporarily plateaued at $4.84 per gallon.

But locally, the consumers are feeling the pain of $4.09. That is the average cost metro-Atlanta drivers spend for a gallon of regular unleaded gas these days, while their diesel counterparts are spending $4.87 per gallon.

Laskoski said the news of modest price increases since mid-June is somewhat redeeming for consumers. "It's encouraging that the price hikes have flattened out so much," he said. "We need to see these prices come down."

Gas prices typically decrease following Labor Day, when demand decreases - fewer people are driving long distances to vacation spots.

"The price of crude oil is being dictated by a lot of factors like demand, weakness of the dollar, speculative investment in the oil futures market," Laskoski added. "We may see prices start to edge down in the next couple of weeks, but not that much."

Prior to the unexpected decline in crude oil prices, the Energy Information Administration had forecast that gas prices would continue to increase slightly throughout the remainder of the summer.

"We had gasoline prices continuing to go up this year to another dime or so," said economist Gamson.

But less demand in the market may have contributed to bringing crude oil prices down.

"It is too early to tell," Gamson added. "But, if it is sustains, we could see prices fall in the near future."