Why are gas prices falling?

Marketplace Contributor May 8, 2012

Jeremy Hobson: Now let’s get to gas prices. They’ve dropped for the fifth straight week to an average of about $3.79 a gallon nationwide. For an explanation, let’s turn to Juli Niemann, analyst with Smith Moore and Company. She joins us live as always from St. Louis. Good morning, Juli.

Juli Niemann: Good morning, Jeremy.

Hobson: So I guess it’s good news that prices are falling, but why are they falling?

Niemann: Well a couple of things. First of all, Europe’s back in recession. We’ve had very weak growth, very high unemployment worldwide. The biggest problem is we really have high inventory as well. We have more than we need. We have refinery problems, pipeline problems all being worked out. So we have new supplies still coming in. We have plenty of inventory.

Hobson: So things are getting worse in some places like Europe, as you say. Does that mean that these gas prices that are falling are really not so great news?

Niemann: It is implying that we have a very weak economy, but my argument is we really never have been out of recession. There just is simply no growth coming in out of there. So when you’ve got a situation where you have high gasoline prices, people are still cutting back. High prices hurt the families and my husband’s high school teacher says kids are still carpooling and that’s a shocker.

Hobson: Do you expect prices are going to go up, though, as we get into the summer driving season, as they usually do?

Niemann: Here’s the pattern. June of 2010 it was $70 a barrel. We went up to $115 in 2011. Then down to $77 in October. Up to $110 this year. We’re going back down. And I think we’re probably going to see it in the $70s again.

Hobson: What’s it like in St. Louis right now, gas price wise?

Niemann: It’s coming down. Everybody is walking around grinning, but it still hurts at $3.45 a barrel.

Hobson: Juli Niemann, analyst with Smith Moore and Company, thanks as always.

Niemann: You bet.

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