CAMARILLO, Calif. -- On November 18, self-serve regular averaged 18.46 cents lower than on November 4, at $2.2411, said the most recent Lundberg Survey (www.lundbergsurvey.com) of approximately 7,000 U.S. gas stations. It's a huge drop, but just a portion of the total drop of 77 cents over the past 10 weeks.
The September 9 all-time high (both nominally and inflation-adjusted) price of $3.01 for self-serve regular came a week after Hurricane Katrina. Since then, gasoline prices dropped, then rose briefly with Rita's arrival, followed by even bigger [image-nocss] price cuts. It has been, in these two and a half months, an accumulated comeback of domestic refining capacity from two hurricanes as the chief cause of the downhill slide.
Contributing to the slide were gasoline imports, with foreign sources rushing to profit from the spiking U.S. prices. And to a degree, gasoline demand shrinkage also contributed to supply.
But the scene has changed in the past two weeks: Crude-oil price cuts also contributed significantly to retail price cuts, while demand didn't. Gasoline demand did not shrink nor grow in the past month, according to preliminary data. This combination of elements is a great market success story of high price bringing on more supply and less demand, which then downward-corrected price and allowed demand to recover.
With most of the idled and damaged refining capacity back on stream, further retail gasoline price cuts should be much more modest than what we've seen lately, barringlarge oil price cuts. Smaller gasoline price cuts are probable near term, according to Lundberg, unless OPEC cuts production, which it reportedly is now considering. Currently that isn't very likely, since producers' profits are still golden, and producers might want to sit a bit longer in the sanctuary of complaints by consumers about tight refining capacity instead of about tight oil production capacity.
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