In Gas Prices, A Silver Lining
Demand Dries Up as Economy Slows, Providing a Rare Spot of Relief

By Steven Mufson
Washington Post Staff Writer
Wednesday, October 15, 2008

U.S. gasoline prices are tumbling because of uncertain economic prospects and sagging consumption, providing a small bit of good news for Americans in a month of financial turmoil.

The nationwide average for regular-grade gasoline fell to $3.16 a gallon, down 63 cents from a month earlier, according to AAA.

"The bottom is falling out of them," said John Townsend, a spokesman for the auto club. He added, "The big question on the table is: With prices falling, will people begin driving more?"

So far, there is little sign of that. A report last week by MasterCard said U.S. gasoline consumption is still running about 5 percent below last year's level. Townsend noted that while pump prices have dropped sharply, they are still higher than they were a year ago. Further, he said, an economic slowdown could mean fewer shopping trips this holiday season.

U.S. motorists' driving habits are easing tightness in global petroleum supply balances.

The International Energy Agency last week trimmed its worldwide oil-demand forecast by 240,000 barrels a day for 2008 and by 440,000 barrels a day for 2009. The IEA said, "The demand impact of weaker economic conditions and high prices during the summer -- when oil prices reached an all-time peak -- was more marked than expected, notably in the United States."

The agency said that "demand in the U.S. may be poised for a more permanent, rather than transient, downward trend." Citing a shift to more-efficient vehicles, changes in driving habits and the declining appeal of suburban living, the agency said that "sustained high prices and sluggish economic activity are arguably likely to reinforce the current wave of structural adjustments."

Separately, an Energy Department report recently said that in the four weeks ended Oct. 3, overall U.S. petroleum demand averaged 18.7 million barrels a day, the lowest level since June 1999.

The stagnant demand in industrialized nations and the prospect of a substantial recession have pushed down crude oil prices. The price of a barrel of crude oil on the New York Mercantile Exchange fell by $2.56 yesterday, to $78.63, lower than it was a year ago.

Gasoline prices have not dropped as fast as crude oil, however, as refiners and marketers attempt to widen profit margins and bolster their financial condition. Earlier this week, independent refiner Tesoro said that it would report third-quarter earnings of $1.70 to $1.90 a share, better than some analysts expected. Tesoro, whose stock price had plunged 82 percent for the year through Friday, said profit margins for all petroleum products expanded. Its shares rebounded somewhat, closing yesterday at $11.08.

The price of crude oil has been closely tracking the mood on stock and credit markets as investor sentiments about whether the global financial rescue plan will prevent a sharp economic contraction swing back and forth. In recent weeks, the prices of oil-company shares have cratered along with the rest of the market.

The decline in crude oil prices has come in spite of several factors that usually push prices up, including low inventories and the prolonged disruption of oil production in the Gulf of Mexico caused by hurricanes Gustav and Ike more than a month ago. The Interior Department's Minerals Management Service said yesterday that only 61 percent of oil production in the Gulf of Mexico has been restored as companies struggle with repairs to platforms.

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