Monday, March 2, 2009

Will Oil Price Drops Reflect At The Gas Pump?

If energy analysts are correct, American motorists should see a drop in gasoline prices beginning in April. That is if market demands truly drive the market price. If not, Big Oil is putting the screws to us once again.

Oil prices dropped 9% Monday on the New York Mercantile Exchange to $40.65 a barrel. In other trading, gasoline for April delivery tumbled 7 cents to $1.30 a gallon for wholesalers.

The national retail average price for a gallon of regular gas last Friday rose about a penny to $1.93 a gallon, according to AAA, the Oil Price Information Service and Wright Express. That is nearly 8 cents a gallon above what it was a month ago, but $2.18 below last July when prices peaked at $4.11 per gallon.

Michael Lynch, president of Strategic Energy & Economic Research, said the relentless influx of grim headlines is keeping downward pressure on the market. "People are looking at weaker demand signals and that's making them think we're going to need another round of cuts from OPEC," Lynch said.

OPEC has already slashed more than 4 million barrels a day from daily production, according to most estimates.

Pessimism in the energy markets grows stronger every time the government must step in to prop up a major U.S. corporation in addition to contractions in gross domestic product and the Dow Jones industrial averages dropping below 7,000 for the first time in 11 years.

Analyst and trader Stephen Schork said the news doesn't promise to be any better this week with a February jobs report due out on Friday. "Thus, from a macro viewpoint oil bulls are still fighting an uphill battle," Schork wrote in his daily publication, The Schork Report.

Raymond James analyst J. Marshall Adkins said falling U.S. petroleum demand and surging oil imports over the past six months have driven oil inventories at the main depot in Cushing, Okla., to the brim.

Those fundamentals, and the continuing global economic meltdown, prompted the firm to lower its 2009 oil price estimate to $43 a barrel from $60 a barrel while OPEC prefers $70. "However, we expect U.S. oil imports to decline in the coming months in the wake of OPEC's large production cuts," Adkins wrote in an industry brief. "Recall that these cuts usually take 45-60 days to materialize in lower inventories."

We'll wait and see.

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