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With the summer here many of us are hard-wired to believe that gasoline prices must be going up. With many American families hitting the road for the annual summer vacations, if they're fortunate to be able to take them, the increased consumer demand for gas must push prices up...
But in reality that couldn't be further from the truth. Today the national average price of gas is $3.64 per gallon, down 16 cents in the past month, and we anticipate that price to go incrementally lower, at least for the short term.
Why is retail gasoline going lower? Certainly the key factor pushing prices lower is the glut of oil. We have oil everywhere and the crude oil inventory reported earlier today at 384.7 million barrels, is at the highest level seen since 1990, according to the Energy Information Administration (EIA).
But why do we have a huge stockpile of crude?
David Bird from MarketWatch reported this month that inventories at Cushing, OK, a major oil hub and delivery point, hit a record high near 43 million barrels, climbing more than 11 percent in the past six weeks. But he explained that part of that was intentional as companies rushed oil to Cushing ahead of the reversal of the Seaway Pipeline, which allows crude to flow from landlocked facilities in the Midwest to the key Gulf Coast refining region.
In the Gulf Coast refiners have the advantage of being able to compete against higher priced international crudes. But Gulf Coast crude inventories are also very high and are fast approaching a three-year peak of 200 million barrels set in 2009.
And part of the reason for the stockpile there is the distressed economy in Europe, exacerbated today by the downgrading of Spain's credit... So the anticipated demand from overseas has yet to materialize.
Even Iran is sitting on inventory that it can barely refine or sell. They're building storage facilities and stockpiling it in supertankers ordered from China to store it and hide it at the same time -- evading sanctions-- until the global price of crude oil rises.
Not surprisingly, the price of NYMEX crude oil is set for the biggest monthly drop in three years.
"Watching Europe go off the rails again this month has been damaging to both confidence and demand," says John Kilduff, a partner at Again Capital LLC, a New York based hedege fund that focuses on energy.
Here at home, the weakness of the U.S. economy contributes to the rise in crude inventory and decline in crude's price. The number of Americans applying for jobless benefits increased by 10,000 to 383,000 and the unemployment numbers, GDP data and other key economic indicators all create 'a negative picture', Kilduff said.
But that 'negative', for now, is at least yielding positive news at the pump!