Gasoline Watch

USA Today follows their story of late August by headlining a continued drop in gasoline prices:

Gasoline prices continue to tumble, almost free-falling toward levels not seen in five months.

The nationwide average for regular was $2.618 a gallon, the Energy Information Administration reported Monday. That was 10.9 cents lower than a week earlier.

"The reason prices are going down so far so fast is that they shouldn't have been that high in the first place. Two reasons they were: fear and speculation," says Mike O'Connor, president of the Virginia Petroleum, Convenience and Grocery Association. It represents gasoline distributors who operate about 4,000 stations.

O'Connor says $2 gasoline "is more likely than unlikely" if the Gulf of Mexico isn't hit by hurricanes and if there isn't a flare-up of tensions in oil-producing regions.

The monthly DOE energy outlook suggests that the big plunge is behind us:

August began with a surge in oil prices, as BP Oil Company announced a reduction in oil production from Alaska’s Prudhoe Bay.  However, August ended with falling oil prices, led by the earlier-than-expected seasonal decline in gasoline prices.

The average retail price of regular motor gasoline fell from $3.04 per gallon on August 7, 2006, to $2.62 per gallon on September 11, 2006, and is expected to fall to an average of $2.55 per gallon in January 2007 before rising again into next summer.

Here is a cool chart, too.         

Captain Ed reminds us that falling gasoline prices probably won't fit neatly into the Dem playbook for this November.  I had pointed out last week that the Times was sliding right past that.

And FWIW, October gasoline futures closed at $1.59/gal; November was at $1.63.  That also suggests the big drop is behind us.

Comments

[Gary Maxwell]

$2.35 at the Quik Trip this week. That is a 20%+ drop from the summer high. I am sure that someone will note the conspiracy obviously present here. Why Bush is from Texas and there is oil in Texas right? What other evidence do you need. ( have you heard about the twin towers?)>

[cathyf]

I'll repeat my comment from over at the Cap'n's:

You know how every time the price at the pump pops up, and the whine is, "well, the gas station already had the gas in their tanks at the lower price! They shouldn't be allowed to charge the new high price for it!"

So, just to be consistent, where are the outraged whiners now that the prices have popped down? Is it really "moral" and "just" for all of you consumers to force the gas station guy to sell you gas for a price that's probably less than the price he paid wholesale for it last week? All you consumers are dispicable price gougers!!!

[PeterUK]

Obviously Bushco has ordered its minions to lower gas prices to deny the Democrats their rightful place as rulers of the known Universe.Algore will never be able to balance the Cosmos.

[TexasToast]

Yep - $2.35 is a bargain! Its amazing when a price spike makes $2.50 gas look cheap.

If Iran cuts off its supply .......

[clarice]

cathyf I do wish that populist economics no nothing O'Reilly had you on as a guest!
Folks, the answer is simple:The Republicans hold the lever that controls gas prices in their hands and raise it early every summer so (in election years) the NYT has reason for hope, and then lowers them in August to affect the election.
It's as obvious as it can be. LOL

[PeterUK]

Clarice,
A new slogan.
"Vote Republican - Or Walk"

[Other Tom]

Meantime, in (arguably) related news: the Tradesports figures for the GOP majorities continue to improve: 84.1 and 46.7. That means the market values the House as a virtual toss-up.

O'Reilly is, indeed, a loud-mouthed ignoramus. All he needs is five minutes with a petroleum-industry economist for a rudimentary primer on the pricing of oil and gasoline, and he would stop running his mouth on this subject forever. But that's asking too much, because the fool never listens to anyone about anything.

[Laddy]

I'm in central IL right now and gas is $2.29 and falling. I've even seen some at $2.24. The last week in August, gas was still near $3.00.

[cathyf]

Hey, PUK, I was counting upon you to deliver a dismissive comment about us yanks and our delusions about "high" gas prices. I even looked up the FX rate for you... If your price is in GBP/liter, just multiply by 7.1 in order to gain bragging rights over high gasoline prices...

[Laddy]

Just because speculators are buying futures contracts at higher prices doesn't mean gas prices will be higher. There's millions of gallons of oil that was purchased at $75 a barrel floating on the high seas that today is worth $65. The owners either have to sell it at $65 or let in float in the tankers. It costs $ to float it on the tankers so that strategy is not a long term one. It's high time the speculators pay the piper for skewing the market.

[cathyf]

cathyf I do wish that populist economics know nothing O'Reilly had you on as a guest!

As the daughter of an economist, I've spent my whole life trying to explain stuff to the economically illiterate. O'Reilly would have to get WAY smarter just to make it up to "moron" on the scale. I recognize a totally hopeless cause when I see one!

(20 years ago my dad taught an economics class as part of an evening MBA program. One of the things that they did was have the Irving R. Levine Prize for Economic Illiteracy In Journalism. Levine was the NBC "economics" correspondent, for all of you kids too young to remember... The students would bring in different examples of economic stupidity in the media, and the student would have to explain the error. Then each week they would vote the Award to the most eggregious example. The only rule was that Levine's work itself was not eligible for the Award -- too much like shooting fish in a barrel. Not sporting you know.)

[PeterUK]

CathyF,
Anything to oblige,you Yanks don't know you've been born!

[Jane]

Ben Steyn says the falling price is due to the fact that we've filled up every oil storage facility on the planet.

[clarice]

Heh! He's one of those who tried to explain this to O'Reilly forever.

Cathyf , since we have about one good economics story a weel on JOM, maybe we should revive the contest.
We could bring it up to date and call it the Paul Krugman award..but , no, then we couldn't nominate him under the rules.......

[PeterUK]

And the Mullahs said unto President Ahmaratbag,"We have an expensive gig coming off in the Lebanon,we need to boost oil prices,go forth and do your routine".
And Lo! President Ahmaratbag did foam at the mouth,rattle his bars and invoke the coming of the End of Days.
And the drivers of Limousines and SUVs did scuttle forth and fill their tanks,and verily did the price of oil go up.

[cathyf]

We could start by explaining to Laddy the function of market makers. And how they don't necessarily make money when the price goes up nor lose it when the price goes down. Oh, and there aren't any speculators in the market because one of the secondary functions of the market makers is to quickly and efficiently relieve speculators of all of their trading capital...

[Patton]

I paid 2.29 a gallon today.

I BLAME GEORGE BUSH!

[Pofarmer]

As someone who has been involved with the commodities markets my whole life, it's been absolutely delicious to finally see the rest of America come to some understanding about "speculators" and commodity markets and such.

Except O'reilly, he's stuck on Big Oil, and can't get the concept of commodity trading and markets in his head at all. As far as speculators. Some get releived of capitol, and some get filthy rich. The only semi-safe way to be in the market is to be a hedger. The hedge funds are moving huge amounts of capital around right now. One reason the oil prices are falling is because they have been moving money out of oil and into ag and other commodities. Oil has topped for now. Check out open interest for the various commodities to see what I mean. You just can't run against these funds that have billion dollar slush funds and are hedged in multiple commodities and options. It's suicide.

[Pofarmer]

BTW

Being a hedger is not the same as being a hedge fund.

I'm not an idiot, just a poor writer, apparently.

[hrtshpdbox]

And FWIW, October gasoline futures closed at $1.59/gal; November was at $1.63. That also suggests the big drop is behind us.
Just for clarity's sake, the fact that November futures trade 4 cents higher than October futures does not, at all, suggest that declines have stopped or even slowed. The slight progression in prices in future months is normal, and indicative of carrying-charges, storage fees, and interest rates (i.e. the "cost of money). A market undergoing a squeeze, where the spot (nearby) month is at a premium to the back (later) months is the unusual scenario, where supply is tight (and it most certainly is not with either oil or gas), or where speculators are holding shorts to the fire. Tomorrow, for instance, if gas collapses a dime, and October goes to $ 1.49, November will be right around $ 1.53.

[lurker]

I think this is temporary, though. It will probably go back up after November.

Chevron's recent discovery is sure to help and we need more of these discoveries. Sooner, the better.

Whadda think about Al-Malaki meeting that stupid Iranian Ahmanidjihad?

[Pofarmer]

"I think this is temporary, though. It will probably go back up after November."

There are lots of things pointing to that not being the case, unless Iran nukes somebody, or Chavez does something equally stupid, which can't be totally discounted.

One thing that's going on is that ethanol production is really going to get ramped up this fall and winter. There is going to be a doubling or greater increase in capacity in the next year. Oil prices need to stay low to pressure the ethanol industry. Biodiesel plants are also coming on line and/or being proposed at a good clip. The oil industry(including the specs) knows that if prices stay up too long for purely speculative reasons, they'll shoot the golden goose.

[hrtshpdbox]

Chevron's recent discovery is sure to help and we need more of these discoveries. Sooner, the better.
That's what's so promising about Chevron's discovery - it utilized a new technology that can access fields deeper into the core, opening the door to areas previously thought undrillable. So, even though this one discovery just serves to replace what the BP pipeline fiasco cost, it bodes very well for future supply.

[cathyf]

Being a hedger is not the same as being a hedge fund.

No kidding, man. Hedge funds hedge like risk arbitragers arbitrage! (Which is to say, they don't.)

[AT]

Pofarmer:

How much of the oil price appreciation of the past 3-4 years do you think is due to the nontrads?

[Pofarmer]

AT

I don't know much about open interest, volume, etc on the oil futures market to even hazard a guess. It's pretty obvious though, that you don't get $80 crude without someone pumping a whole lot of money into the market. My feeling is that they are now "harvesting" so to speak. One thing I would like to know, and maybe you do, or someone else. Is the Oil market Cash settled?

I do know, that since they've been allowed to trade the CBOT that volatility is way, way up, and the price swings are wider. The country basis is also wider, indicating that the cash market thinks the futures market is overblown.

[Gary Maxwell]

TT you dont need gasoline to hop on your bicylce and peddle away with your birkenstocks!!! Hasn't Al taught you anything?

[Bob]

And look who drop the ball!

http://www.cbsnews.com/stories/2006/09/12/politics/main2001197.shtml?source=RSSattr=U.S._2001197>Big Oil Gets Big Break, By Mistake

A federal inquiry has been trying to get to the bottom of just who gave big oil this big break. It happened eight years ago: Leases issued for deep-water drilling in the Gulf in 1998 and 1999 released oil companies from paying the royalties even if the price of oil escalated to incredible heights, as they have in recent months.

Funny how CBS News use the dates 1998 -1999 and don't mention it was Clinton's handy-work...

This must have been for Bush's buddies... boy that Clinton what a guy!

[Bob]

ooops... that should have been dropped

[noah]

TT, he's the same guy who complained here months ago the NO had not been completely rebuilt. There is just no pleasing the entity!