Tuesday, November 18, 2014

Oil Price Below $75 per Barrel Today ... Gas Prices Have Further to Fall

Oil is selling below $75 per barrel today, signaling that significantly lower gasoline prices lie ahead. We could soon be seeing prices at the pump below $2.50 per gallon and continue toward $2.25 per gallon, or perhaps even lower.

And even if the oil price per barrel doesn't fall much further from its current level of $74.62, gasoline prices will keep falling for two reasons: (1) the below $75 per barrel hasn't moved completely through the wellhead through wholesale to retail delivery system yet; and (2) gas stations have kept for themselves a considerable amount of the drop that has already moved through the system. In other words, they have been slow to pass on to consumers much of the drop in prices that has occurred --- at least so far.

Gas stations were slow to pass on oil-price slide tells the 'good news lies ahead' story about concerning falling gasoline prices:
"Revenue for gas stations dropped sharply in October as oil prices have tumbled. But even as gas stations cut the cost at the pump, they kept some of the oil-price savings for themselves.

That’s according to the latest data from government sources. . . . the Labor Department on Tuesday reported that margins for fuel and lubricant retailers jumped by 26.1% in October, in a month when gasoline prices fell to an average of $3.12 a gallon from $3.46 in September. The rise in margins is the largest since May 2010.
Paul Dales, the senior U.S. economist at Capital Economics, said he’s not sure such margin-padding will last.

“The question is whether this is temporary as wholesalers and retailers just haven’t got round to cutting their prices yet, or whether they are hoping that the strength of demand will mean they don’t need to. Our feeling is that a lot of the widening will be reversed in the coming months, although the strength of demand will mean that a more gradual and modest widening in margins takes place over the next year,” he said."

Summing Up

Gas prices continue on their way toward $2.50 per gallon and then lower.

Where will they stop? Nobody knows.

Is OPEC in control? It doesn't look that way to me.

Are we in control? We could be if our government ever gets its act together and allows the free market to work its magic.

In any event, stay tuned for a happy and low cost Thanksgiving holiday driving weekend.

And that will be in no small part due to the lower gasoline prices at the pump, which will result in a better consumer mood and spending pattern for the Christmas season too.

That's my take.

Thanks Bob.

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