Why $4 a Gallon Gas Wouldn't Last Long

Not long ago, everyone knew gas was going to reach $4 a gallon for regular on a nationwide basis soon. It was a lock -- a sure thing. Now, though, that sure thing is looking iffy: The AAA Fuel Gauge this week shows gas prices wavering. On Wednesday, the cost of regular fell to $3.963. A week ago, the average was $3.982. But on Thursday, prices bubbled back up to $3.984. AAA polls up to 100,000 stations in its survey. On Sunday, however, another report, the Lundberg Survey, said that prices had topped $4 over the past two weeks.

One of the reasons prices at the pump may fall is that gasoline futures have collapsed. The Wall Street Journal reports that "Gasoline prices tumbled 7.6% to $3.1228 per gallon after the U.S. Department of Energy surprised traders by reporting a buildup of gasoline stockpiles in the previous week. Crude oil fell 5.5% to $98.21 a barrel."

Several other factors could push gas prices down. First, there are hints that China's demand for oil will falter: New data shows that economic growth in the People's Republic is slowing slightly, and the world's most populous country is also its largest net importer of crude, so any decline in its purchases will reverberate throughout the energy markets.

Second, Japan's massive earthquake and tsunami have blunted its demand for oil -- and that nation, too, is a huge net importer. Gas demand there is likely to drop as well, especially in the quake-savaged north of the country.

Gasoline demand in the U.S. has fallen as well, and it could keep dropping. Over the past five weeks, drivers have started to cut back, log fewer miles than they did at this time last year. If that trend continues into the summer driving season, it will become clear that prices had in fact reached the levels necessary to change the behavior of American drivers.

Some industries are also trimming their fuel use -- most notably, the airline industry. Delta recently said it would cuts its capacity by 4% because of fuel costs. Other airlines are likely to follow suit for the same reason.

Even if gas does top $4 a gallon, expect its time at that level to be brief: With such strong factors coming into play to put downward pressure on prices, a drop in the near term seems almost inevitable.

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Gary

At 97 dollars a barrel , gas SHOULD be 3.50 , , not even close to 4 dollars .

May 16 2011 at 7:10 AM Report abuse rate up rate down Reply
Donald G

We will go beyond $4.00 a gal gas if we go for round 3 of quantitative easing. Round 2 ends this June, then who will purchase our approx. 130 billion per month of debt?

May 15 2011 at 6:30 PM Report abuse rate up rate down Reply
Jennie

well it has been 5 days now an gas is still over 4.00 a gal. an oil is still below 114.00 it isn't even 100.00 now. so when is this gas going down to meet the low prises??????????????????? God help us

May 13 2011 at 5:40 PM Report abuse +3 rate up rate down Reply
emil k

A couple of problems:

1. Even if Chinese GDP growth slows, it will still be in the 7-8% range. Gasoline demand will continue to increase in China, it wont fall. In fact fuel demand will continue to increase in China at a rate faster than overall GDP growth
2. Japan: The NE section of Japan contributes about 2% to Japan's total GDP. A decline in gasoline demand there wont impact overall demand very much. Oil demand will rise for Japan as the country, in the short term, will rely less on nuclear power for its energy needs.
3. Gasoline inventories now in the USA are below 2010 levels and are at the bottom of the 5 year range (see This Week in Petroleum).

What happened is that commodity prices rose to the point where global growth was beginning to be impacted (US ISM numbers, weekly unemployment claims etc). So until unemployment falls probably under 8%, it will be hard to sustain $4 per gallon gas in the US.

May 13 2011 at 9:54 AM Report abuse +1 rate up rate down Reply
johnthomas

No mention that prices are about to fall because of the belief that Bernanke is going to turn off the printing presses? No, oil prices are not where they are at on supply issues alone.

May 13 2011 at 9:42 AM Report abuse rate up rate down Reply
1 reply to johnthomas's comment
kastmaster2105

Oil prices drop here and stations gas prices go higher in Hitchcock, Texas. (by 7 cents). They are gouging here for sure. Mostly these Idians and Pakistinis, RH's etc. own these things and squeeze us to death. I hope Big O's plan to capture these oil biz frauds works. We need an address to report these gougers to.State Reps can't work for us, mess is out of their hands they say!! Right?? Get what ya pay for I guess. Oil prices have dropped from $113 to 98.90 now, and gas only goes up..Explain that S++++ to me..

May 13 2011 at 9:14 AM Report abuse -1 rate up rate down Reply
allisonisa39e

Thank you for your opinion, That and a few dollars will get me a bus ride.

May 13 2011 at 6:28 AM Report abuse rate up rate down Reply
cugar65

are u agree with my msg bottom

May 13 2011 at 6:22 AM Report abuse rate up rate down Reply
cugar65

me is what u wants to do with gas needs to ride anywhere than no gas . thats is point !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

May 13 2011 at 6:21 AM Report abuse rate up rate down Reply
rasberrieshoo

In Europe they get by with small cars , roof racks and small trailers when needed. Guess what, so do I . Guess your special, whine some more then.

May 13 2011 at 2:44 AM Report abuse -1 rate up rate down Reply