Drivers rejoice as prices at pump drop dramatically

[Digitonomy]

Many who filled up Friday said their glee over the cheaper gas would be short-lived, but the price cuts might not be as temporary as most would think. They likely will stay steady for at least another month, said Judy Reville, the division manager for the Augusta branch of AAA Auto Club South. The lower prices are partly caused by the sell-off of oil stock on Wall Street, Ms. Reville said.

Gas prices soared above $4 after hurricanes Gustav and Ike hit, causing power outages at 14 oil refineries in the Houston area. All but one have been restored, Ms. Reville said.

The drop in prices also is a result of the falling crude oil prices, he said.

Gasoline prices are also dropping because fear has subsided. “People are buying less, so that would definitely drive the price of gasoline down,” Mr. Butler added.
Source

Strangely, there hasn’t been much moaning about the role of speculators in driving down fuel prices.

 

[JOETEXAS]

in my ignorance I understand that speculation leads to high prices and not viceversa…can someone give me an exemple where speculations can lead to low gas prices???

 

[Digitonomy]

in my ignorance I understand that speculation leads to high prices and not viceversa…can someone give me an exemple where speculations can lead to low gas prices???

Anyone invested in the oil market can affect the price of oil. Southwest Airlines, for instance, bought large quantities of oil futures over the past decade or so to lock in what they thought would be a lower price. This proved to be a smart move, and they were able to keep their fuel costs below that of their competitors. Other companies didn’t have the money to do this, or didn’t believe the price would go up. Those who had the money and inclination did what Southwest did, driving up the price of oil in advance of the actual oil crunch. This made the oil price shock this year much less severe than it would have been had prices started at say early 2004 levels.

Now that high prices have increased supply and decreased demand, and the economic crisis looks to dampen demand for the next year or more, many investors have dropped out of the oil market. Those still actively involved in oil trading can also sell short, selling their share at current prices and covering that sale by buying a share later at what they expect to be a lower price. Both dropping out and short selling increase supply in the oil market, and thus decrease the price.

Again, the drop in prices precedes the drop in demand expected as the fizzled economy starts to affect people and businesses worldwide in coming months, and this smooths out price fluctuation somewhat.

It’s also worth noting that only those who are correct about future prices profit, in other words those who are usually stabilizing the long or medium term market price. Those who bet on high prices and drive the price above what the market will bear lose their shirts when the price drops, as do those who take too bearish an approach when the price is about to go up.

How oil price speculation works

Wikipedia: Selling Short

 

[DaveBj]

Don’t worry. Gas prices will be going up again, soon.

DaveBj

 

[wjp984]

We are brainwashed into thinking that this is cheap. $3 a gallon is still way expensive in my opinion

 

[peregrinus_WA]

Paid 2.929 on Saturday. Was 2.899 at that same station on Monday. Saw cash prices along 8 Mile yesterday as low as 2.759