Jul 18, 2008 6:56 am US/Mountain
Gas Prices Should Eventually Drop As Oil Slumps
DENVER (CBS4/AP) ―
Oil rebounded to near $131 a barrel Friday in Asia as news of an output cut in Nigeria helped to halt the sharp decline in prices that began three days ago. But prices are down sharply from a week ago when crude oil was about $147 a barrel. That has many wondering when the prices at the pump will start to drop.
The slowing demand for gas that costs $4 a gallon may have also helped bring prices down in the supply and demand model. Americans have been driving less as the prices keep going up and the economy slows.
A member of the Colorado Petroleum Marketers Association said we won't see a drop in the price at the pump for a couple weeks.
The gas station have to first sell off the big supplies they bought as a hedge against rising prices they had to pay.
"It is all about replacement costs," said Mark Larson, Executive Director of the association. "As soon as we deplete that inventory, then we'll start to see the street price reflect the new costs. Bust guess, two to three weeks."
Larson said that for every dollar up or down the price of crude oil moves there's a corresponding impact at the pump of about 2 cents.
Mid-afternoon in Singapore, light, sweet crude for August delivery was up $1.66 at $130.95 a barrel in electronic trading on the New York Mercantile Exchange.
The contract fell $5.31 to settle at $129.29 a barrel in the overnight floor session. That brought the total decline over the past three days to nearly $16.
Despite the rebound in Asian trading, oil is still down more than 10 percent since Monday.
Rising crude inventories and comments from Federal Reserve Chairman Ben Bernanke warning of "significant challenges" facing the U.S. economy stoked expectations this week that slowing economic activity will help cut demand for oil products, such as gasoline.
"The rise in inventories gave investors a reason to sell what looks like was an over-bought market," Mark Pervan, a senior commodities strategist with ANZ Bank in Melbourne said. The market also reacted this week to Bernanke's comments, "which were much more cautious than before," he said.
Pervan said he expects crude oil to average $135 a barrel in the third quarter and $125 a barrel in the fourth quarter.
In other Nymex trade, heating oil futures rose 0.25 cent to $3.77 a gallon while gasoline prices rose 4.1 cents to $3.2039 a gallon. Natural gas futures rose 3.9 cents to $10.576 per 1,000 cubic feet.
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