Gas on track to drop to $3 by fall

12:04 AM, Jun 23, 2012   |    comments
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The darkening clouds of the slowing economy could provide a bright spot for consumers: gasoline at $3 a gallon -- or less -- by autumn.

Nationally, regular gasoline averages $3.47 a gallon, down 47 cents from this year's high in April and well below the $5-a-gallon fears fanned earlier this year by energy speculators, Middle East tensions and oil refinery glitches that crimped supplies.

Those issues appear to be over, at least for now. Thursday, benchmark crude oil closed under $80 a barrel, the lowest price since October.

Coupled with slumping wholesale gasoline contracts for fall delivery, "the market is suggesting gas below $3 by Halloween, and certainly by Thanksgiving," says Tom Kloza of the Oil Price Information Service.

With production up, oil inventories at 21-year highs and tepid consumer demand, gas prices have fallen for 11 weeks. They're expected to drop more sharply after the peak summer driving season.

"Demand just isn't there," says Brian Milne of energy tracker Televent DTN. "It's been dreadful."

Barring supply disruptions heading into hurricane season -- which helped drive pump prices to an all-time $4.11 high in July 2008 -- consumers could soon be filling up at prices not seen since December 2010.

And that could have widespread impact, from consumer spending to the presidential elections, where debate over the price run-up early this year dominated much of the political debate.

"You're talking about roughly $114 billion in extra consumer spending power, and that's a big deal if overall consumer spending is up 2% to 2.5% this year," says Nigel Gault, chief U.S. economist at economic forecasters IHS Global Insight.

A weakening U.S. economy, the European recession and slowing growth in emerging markets such as China could push crude oil prices down even further, Gault says.

Not everyone sees gas prices dropping as sharply or for a prolonged time. Energy trader Dan Dicker expects crude oil prices to bottom out at about $75 and gas prices this year to bottom around $3.30.

"The fundamentals are all bearish, but we've seen lower prices every fall for the past four years, then see prices start to rise again," Dicker says. "This year, the major wild card is a European economic collapse."

Motorists in some regions are already paying less than $3 a gallon. In South Carolina, where the average price is a U.S. low of $3.06, nearly 30% of service stations are selling gas below $3.

Consumers elsewhere aren't as fortunate. California averages $3.93 a gallon -- the highest price in the continental U.S. But about 25% of the state's gas stations are charging $4 or more, according to the Oil Price Information Service.

By Gary Strauss



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