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Gas prices drop despite predictions otherwise

Marketplace Staff Jun 29, 2011

Gas prices drop despite predictions otherwise

Marketplace Staff Jun 29, 2011

Bob Moon: Walmart has come up with a new loss-leader to get shoppers into its stores: cheaper gas. Customers can knock a dime off every gallon as long as they pay with a Walmart credit card, or a reloadable Walmart gift card or MoneyCard. In other words, you’re likely to step inside the store to get the discount. The offer is good through September in 18 heartland states — although not in the Northeast, Fla., or the West Coast. Even without Walmart’s help, prices at the pump keep falling. So much for that scary talk about five-buck-a-gallon gasoline. Marketplace’s Scott Tong is here with a status report from Washington. Hey Scott.

Scott Tong: Hey Bob.

Moon: So what happened to this gas-mageddon that we were anticipating? I spent $3.60 a gallon in Southern California just this past weekend.

Tong: I got you beat Bob. Y’know Sunday I sent my fifth grader to summer camp and I tell ya… Somewhere near Fredericksburg, Va., is $3.29.

Moon: Whoa.

Tong: So drive on over and I’m sure it’s worth it for you.

Moon: I’ll think about it.

Tong: Nationally gas prices have tumbled about 24 cents this month. And the biggest factor in gas prices is crude oil prices, which fell about 7 percent this past week. And we know what happened this last week, the IEA, the International Energy Angecy that is the non-OPEC producers and the U.S. said they were going to open the spigot. Release a small amount of their rainy-day stock piles into the market.

So if you’re buying anything and you see more of anything on the market, more oreos on the shelf or more oil on the market you figure things are going to fall. Now here’s the thing about oil and gas the new supplies aren’t even on the shelf yet. They’re just taking bids today. But Mark Routt at energy consultantancy KBC told me that oil and gas station prices they react instantly.

Mark Routt: Gasoline prices move virtually in lockstep with crude prices so if there’s an announcement that the IEA is making available extra crude end products on the market the market discounts that news immediately because the market works in advance. It works typically 30 days in advance.

Tong: Now, of course there’s always a tug of war when it comes to gas prices, Bob. There’s news today that American stock piles may be down a little bit so you never know. But the smart money seems to think that we may see a fairly moderate summer at the pump.

Moon: So are we then going to go back to our gas hogging ways here? Back to the SUVs circa 2007 if that’s the case?

Tong: I talked to several energy analysts today and virtually zero of them think that that’s going to happen. In fact, all of them think that U.S. demand has peaked for good. We’re not talking about peak oil supply, but peak North America demand. If you look at the numbers, total vehicle miles have maxed out, our commuting distances too. And perhaps most important, our cars are getting more fuel efficient. In this next model year it’s going to be even more so because of new rules for fuel economy.

There’s one economist in Calgary named Peter Tertzakian and he uses the phrase “energy obesity.” And y’know it’s not like we Americans are particularly svelte at 19 million barrels a day. But it seems our gorging behavior seems to have topped out.

Moon: So it seems that we are then changing our habbits. We’re slimming down. I wonder does that feed on itself? Is it going to reduce the demand for oil and then bring prices down?

Tong: That’d be negative Bob. Oil, of course is a global thing. It’s subject to global supply global demand and the biggest piece to the demand story it ain’t us, it’s China doing what we did back in the 20th century. Moving to the cities, buying their first car, driving to work and wouldn’t you know it they buy a lot of Buicks. So in nerd speak their the crude oil price makers and we’re the price takers. And some analysts think the Chinese will keep buying even if the prices go up 30 percent. So that’s in the neighborhood of $125 a barrel, $4.50 a gallon here in the states.

Moon: I saw just today that crude spiked 2 bucks a barrel so I’m not going rush out and start spending my savings at the pump just yet Scott. That’s just me being cautious though.

Tong: I guess don’t expect a $2 gallon ever again is what the pros are telling me.

Moon: Marketplace’s Scott Tong, thanks.

Tong: You’re welcome.

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