Enjoy Lower Gas Prices While They Last

The one silver lining I’ve seen in the current economic crisis is that oil prices have dropped like a stone, taking gasoline prices with it.   I gassed up my 4-cylinder sedan for $26.88 earlier this week… gas was $2.19 per gallon.   Tonight there are stations in the Twin Cities area that are advertising $1.97 per gallon.  Crazy, eh?

The last time prices were this low was in early 2007, and I honestly thought we’d never see prices that low again.  I guess I didn’t consider what a global financial crisis and associated commodity deflation would do.   A lot of the current pricing is due to forced selling by hedge funds and other large investors who have been facing margin calls and other fun stuff like that.  It gives us a picture of how much of oil’s $100-plus pricing was due to speculation.

It is interesting that diesel pricing has not fallen as far.  I couldn’t begin to explain why that is the case.  Other commentators out there can.  The main takeaway I get from this is that the prices we pay for food & other goods will not fall much until diesel prices go down.

For those of us who drive or otherwise use a fair bit of gasoline can revel for the moment in the return of lower gas prices.   I would caution against thinking that we are ‘reverting to the norm’ with regard to gas prices.

For your consideration:

Output from the world’s oilfields is declining faster than previously thought, the first authoritative public study of the biggest fields shows.

Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent, the International Energy Agency says in its annual report, the World Energy Outlook, a draft of which has been obtained by the Financial Times.

Emphasis mine.  The original story is here.

The article continues in saying that even with additional investment, the annual decline rate is in the neighborhood of 6.4 percent.   We won’t feel this for a while, especially if the developing world’s ability to import oil is compromised due to the global financial contagion that has been sweeping around the world.   Eventually, though, the impact of declining supply will be felt.

Enjoy the lower prices while they last… just don’t be surprised when they start heading north again.

2 Responses to Enjoy Lower Gas Prices While They Last

  1. Verde says:

    What irritates me is that prices around here remain high. Yes, they’ve fallen but we’re still around the $3.00 mark. Picking my daughter up from school she was talking about the hummer in front of us saying, “in times like these it’s amazing that they’re driving that”.

    So, my guess is that you are not comforted by the stock market rebounding?

  2. Bart says:

    The disparity in gas prices from state to state is bizarre. Why both coasts are significantly higher than the Midwest is strange. I know we get a lot of our petroleum from Canada, but I’m not sure how that plays into national supply/demand & pricing issues.

    I’m not comforted by the stock market rebound. Stocks will go up and down dependent on many things. The massive bailout actions that have taken place so far will do little or nothing to fix the housing market’s woes, and it really doesn’t do much to help those who are facing foreclosure. The Feds are choosing to add as much liquidity as they can to try and get banks to lend to people and to each other. So far it’s barely working from what I can see.

    From what I’ve been reading, we still have an basic dilemma… we will either be able to save housing or the markets. I think both major parties have an interest in pushing this problem past November 4th, so for the next week or two we’ll see the markets gyrate wildly. Personally, I think this is just noise. We still have problems that need to be addressed in housing, Treasury Bonds, and overall fiscal policy. If the stock market jumps because we are printing more dollars, that’s not really a recovery IMO.

    Stay tuned. 🙂

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