Prices at pump likely to fall more;

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But probably not as fast as oil prices


WASHINGTON, DC — Gasoline prices dropped over the holiday weekend and are likely headed lower. But drivers who expect gas prices to fall as sharply as oil prices in recent weeks will likely be disappointed.

That’s because gas stations aren’t seeing their fuel costs drop as swiftly as oil prices. And studies have shown retail gas prices “rise much more quickly when oil prices rise, and they fall much more slowly when oil prices fall,” says Stephen Brown, director of energy economics at the Federal Reserve Bank of Dallas.

The average retail price of a gallon of regular gasoline fell 4 cents from Friday to Monday to $2.233, according to auto club AAA and the Oil Price Information Service. That’s the biggest drop over a three-day period since the end of September.

Gas prices are down 4% this year. The price of a barrel of oil trading in the USA for delivery the next month has dropped more than 13%.

On Monday, oil fell 16 cents to $52.83 a barrel in electronic trading, according to Reuters. That was down more than 30% from the record high, not adjusted for inflation, reached in July.

More relief for drivers is likely on the way. Average retail gasoline prices are expected to drop a dime or more over the next few weeks, say a number of energy analysts, including those at Wachovia, A.G. Edwards and Moody’s

The decline that analysts are predicting would not come close in magnitude to the falloff in prices seen in crude oil markets. Oil prices have dropped swiftly this year, in part because of warm winter weather in the USA and in other parts of the world, which has reduced demand for heating oil.

One reason gasoline prices have not dropped as sharply is that the start of the spring driving season is nearing, leading investors to stay on the defensive, Wachovia economist Jason Schenker says. That will limit declines in gasoline prices for consumers.

“Maybe a dime,” Schenker says. “We’re not talking $1.50 gas at the pump.”

Tom Kloza, chief oil analyst at Oil Price Information Service, says another factor limiting price drops at the pump is that many gas station owners lost money on sales in November and December because competition limited price increases even though the prices they paid for gasoline were rising swiftly. As their prices fall, they can recoup some of those losses if they limit retail price drops.

Judy Dugan of The Foundation for Taxpayer & Consumer Rights calls the small drop in gasoline costs a “real scandal” and says oil companies are to blame.

“We have no trust at all in the oil companies’ excuses for gasoline pricing,” she says.

Consumer Watchdog
Consumer Watchdog
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