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Gas Prices Drop Slower Than Oil Prices

Los Angeles Sentinel , News Analysis, Jason Lewis Posted: Oct 29, 2008

Oil prices have plummeted, which has given us relief at the pump, but it does not appear that the gas stations are dropping their prices at the same rate as the oil prices are dropping.

When oil was up to a record $147 per barrel in July gas rose to over $4.50 per gallon. Since then the price of a barrel of oil has dropped 52%. Oil fell just under $70, and at the moment is it at $71 per barrel.

If gas prices would drop at the same rate then we should be paying about $2.25 a gallon, but you will not find gas under $3.00. Gas is between $3.15-$3.30 a gallon near the Sentinel.

So whats the problem? Why are gas stations not dropping retail gas prices in line with the drop in oil?

Well it seems to be the gas station owners. They have claimed that they were not the problem with the gas prices shooting way up, which is true. But now that the price of oil has gone down they appear to be fattening their pockets a little while longer.

Of course motorists are getting hosed, says Weeden & Co.s Charles Maxwell, in an interview with the New York Post. Maxwell is known as the dean of energy analysts.

The dealers at the pump will often wait several days before passing along the drop in crude prices, Maxwell said. If their competitors arent going to drop the price, the dealer isnt.

It appears that as oil prices go up, gas prices go up at a faster rate. As oil prices go down, gas prices go down at a slower rate.

Any dreams of gas dropping in the $2.25 range may be far fetched, especially if the Organization of the Petroleum Exporting Countries (OPEC), which controls 40% of the worlds oil supply, has their way.

Next Friday they will hold a meeting where the group is planning to announce an output reduction that analysts believe could total at least one million barrels a day. Their thought is that with less oil being produced the price per barrel will go up. They want to see the price per barrel in the $90 range.

If their theory is correct the price at the pump will more than likely go back up. Hopefully that will not be the case and oil prices will continue to drop, even with the reduction.

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