CAMARILLO, Calif. -- Retail gasoline prices crashed an amazing 49 cents in the past month, and 23 cents in the past two weeks, according to the most recent Lundberg Survey of approximately 7,000 U.S. gas stations. Self-serve regular now averages $2.4257, down 23.30 cents since October 21.
It is a success story of supply-demand dynamics: more supply, less demand, after hurricanes Katrina and Rita knocked out refining capacity. Rapid comeback of domestic capacity was joined by waves of imported [image-nocss] gasoline to make up the gap. Meanwhile demand dropped even a bit more than it normally does after summer, shying away from high prices, contributing to supply.
From here, any further retail gasoline price cutting will probably be much smaller than it was this past month, because of further return of refining capacity and because high prices' hit to demand is lessened as prices plunge. Assuming healthy economic conditions, gasoline might bounce back more rapidly than some pessimists thought. Both supply and demand are normalizing.
Reasons prices are likely to continue their downward path, but at a moderate pace include abundance of crude oil, so-far mild winter weather, and retail margins generally wide enough to withstand some shrinkage during price competition.
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