Fuel Falling Fast

By Brian L. Milne, Refined Fuels Editor for DTN

Wholesale gasoline prices continued to slump in markets across the U.S. during the first week of November, with gasoline in most large metropolitan markets now $1 or more a gallon cheaper than a year ago at this time.

Elsewhere, wholesale markets are roughly 90cts or more below comparable price levels for early November 2007.

The steep decline by wholesale gasoline prices, which is unprecedented, has driven down the cost at the pump for Americans. Moreover, data shows consumers maintaining discipline in their conservation efforts—driving less that, in turn, is adding price pressure for gasoline.

The average price for regular grade gasoline across the U.S. was last posted by the Energy Information Administration (EIA) at $2.40 per gallon, more than 60 cents below its value for the comparable year-ago period, suggesting another 40 cents per gallon fall in retail gasoline prices.

However, that is far from a sure thing; in fact, the price decline in most major metropolitan markets should slow.

It may be hard for many American drivers to imagine that oil refiners can actually lose money in converting a barrel of crude into gasoline, but based on the wholesale financial market for crude oil and gasoline, refining crude into gasoline has not turned a profit in more than two weeks.

This market environment is not sustainable however, and refiners will continue to ratchet back gasoline production as a result. The consequence means less available supply that would work to limit and likely reverse the price decline.

About the Author
Brian L. Milne is the Refined Fuels Editor for DTN—a leading business-to-business provider of real-time commodity information services. Milne has been focused on the energy industry for nearly 14 years as an analyst, journalist and editor. He can be reached at brian.milne@dtn.com.

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