By Brian L. Milne, Refined Fuels Editor for DTN
In a growing number of metropolitan markets, gasoline prices at retail outlets have fallen below their price a year ago, and are still headed lower as demand tumbles on driver conservation and amid a troubled economy.
Wholesale markets are factoring in greater decreases in gasoline prices, expecting demand to continue weakening in the face of deteriorating economic conditions that include higher unemployment.
Worried over tumbling demand and its impact on its selling prices, the Organization of the Petroleum Exporting Countries (OPEC), a cartel that includes 11 oil producing member countries plus Iraq, decided at an emergency meeting in Vienna on Friday (10/24) to cut their production rate of crude oil starting Nov. 1.
However, the production cut, which was widely expected by the market, has failed to slow the decline in crude prices—the largest cost component for gasoline. In fact, since the OPEC announcement, crude prices tumbled to their lowest level in more than 17 months at $61.30 a barrel.
Crude oil and gasoline are now in a condition called an “oversold” market, which means the selling has been at such a pace as to overstate the bearish or negative supply-and-demand factors. In such a market, a price increase is expected.
While the wholesale markets could bounce higher, there remains more downside priced in for retail values to continue the slide in pump prices.
Longer term, the OPEC cut which could be followed by another later this year will work to tighten the global supply-demand balance and halt the precipitous price decline we are now seeing at the country’s retail outlets.
About the Author
Brian L. Milne is the Refined Fuels Editor for DTN—a leading business-to-business provider of real-time commodity information services. Milne has been focused on the energy industry for nearly 14 years as an analyst, journalist and editor. He can be reached at [email protected].