Freefall Continues

By Brian L. Milne, Refined Fuels Editor for DTN

Commonly called a tax on American households, gasoline prices continue to plunge with regular grade having now broken below $2 gallon in numerous metropolitan regions across the U.S., offering a tax break that is certainly welcomed news amid the current bleak economic outlook.

The primary reason for the freefall from all-time record highs set during the summer is tumbling crude oil prices, which broke below $50 barrel last week for the first time in nearly two years driven by worries of lost demand due to the economic turmoil the U.S. and global powers are now confronting, with fear of further demand destruction due to contracting economies through 2009.

Gasoline demand in the U.S. is down 3% so far in 2008, and, if it continues through year-end as expected would mark the sharpest drop in the gasoline consumption rate since 1980.

Weakened Demand
Consumers ratcheted down driving needs as gasoline prices spike over $4 gallon during the summer. Puzzling many analysts now is why gasoline demand hasn’t picked up since retail prices have been more than halved since July, with the working analysis suggesting the reason is because of a combination of job losses and an American consumer stunned by the economic upheaval maintaining conservation efforts.

View DTN’s Weekly and Historical Gas Prices

Wholesale gasoline prices are down across the board ahead of the Thanksgiving holiday, falling between 10 cents and 21 cents in major metropolitan markets in the U.S. Wholesale prices are now hovering from around $1.10 gallon to $1.40 gallon, with the year-on-year loss actually greater than current fair market value.

Wholesale prices are near a bottom, if they haven’t already reached one, but expect retail prices to continue their slide near-term as the wholesale discounts are passed through to the pump and American consumers.

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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