Gas Prices Fall Because Nobody’s Driving

From the Associated Press, via Petroleum News:

Oil tumbled below $44 a barrel Dec. 4 and the average gallon of gasoline is now less than $1.80 nationally*, both four-year lows, as the number of people continuing to receive government aid reached a 26-year high, factory orders hit an eight-year low and major corporations slashed jobs.
Though the unprecedented decline in energy prices provides some relief to consumers and businesses, it has occurred as the nation dips into recession.

Part of the reason gasoline prices have fallen so low is that many people no longer have jobs to drive to and fewer people have money to spend shopping. Gasoline futures fell below a dollar a gallon.

If you don’t have a job, then you won’t drive as much, which reduces the demand for gasoline.  The law of supply and demand goes into effect;  less demand for a given supply lowers the price.

Veteran energy analysts were stunned as they watched light sweet crude fall $2.91, more than 6 percent, to $43.88 on the New York Mercantile Exchange by early afternoon.

Just four months ago, crude rocketed close to $150 and the average gallon of gasoline went for more than $4 per gallon.

No one believed crude would lose $100 in value by December, said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service.

Some analysts believe demand could evaporate even more early next year because of a severe global economic slowdown.

So everybody who wanted cheap gas may get their wish… instead of lowering the price of gasoline by increasing drilling (supply), we’ve lowered it by reducing demand, via global economic collapse and depression.

“People are waking up to the fact that there may not be much demand,” said Phil Flynn, an analyst at Alaron Trading Corp.

Prices at the pump continued to decline, falling 1.4 cents overnight to $1.789, according to auto club AAA, the Oil Price Information Service and Wright Express. That price is down 60.2 cents from just last month.

Though there are signs that Americans are able to drive more with prices plunging, Flynn does not see enough demand to justify big increases in oil and gas prices.

“We have entered a new era of lower gasoline prices and oil prices,” he said.

* Except here in Alaska, where it is still around $3/gallon.

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