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http://www.cleanmpg.com/photos/data/2/AmericanFlag.jpg Oil falls possibly due to poor U.S. and European unemployment reports. (cleanmpg.com/forums/showthread.php?p=219776)

http://www.cleanmpg.com/photos/data/501/Gas_Nozzle.jpgWayne Gerdes - CleanMPG (cleanmpg.com) - July 4, 2009

Pump prices have stabilized while the nations wallet continues to drain thanks to an ongoing recession.

Crude Oil

New York, NY. -- In a holiday weekend shortened trading week, Crude oil prices fell due in part to poor economic reports from both the US and Europe.

On Thursday, the US Bureau of Labor Statistics reported that US employers had released far more workers than expected in June, pushing the country's unemployment rate to a 26-year high at 9.5 percent. Similarly, the EU released its 16 country report revealing the same 9.5 percent unemployment rate, a 10-year high.

With the unemployment report(s) as the backdrop, NYMEX’ Crude Oil benchmark, West Texas Intermediate, fell for the fifth day in a row, settling down $2.58 at $66.73 per bbl.

Seedier side of Crude Oil pricing

Balancing the demand reduction due to slackening demand from the unemployed/under employed, speculators are trading up to 50 times the volume of Crude oil than is actually available for physical delivery on a daily basis!

A June 2006 US Senate Permanent Subcommittee on Investigations report on “The Role of Market Speculation in rising oil and gas prices” noted, “… there is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices”.

"Our analysis shows that the fundamentals are deciding the direction of the price while these funds or speculations ... are amplifying the movement," said Nobuo Tanaka, head of the International Energy Agency.

Gasoline – Good news?

As we are now experiencing the July 4th weekend, Government forecasters believe we may have seen the peak in fuel prices for 2009.

“Barring an unexpected supply interruption or international price shock, the June 22 price of $2.69 per gallon may be the highest weekly regular gasoline price for the summer of 2009 – which would be good news for drivers planning to take to the road on the July 4th weekend or later this summer.”

U.S. average gasoline price falls a nickel - Reversing the trend of the previous eight weeks, the average price for a gallon of regular unleaded fell $0.05 to $2.64 per gallon.

Prices decreased throughout the country, with the lowest regional prices occurring on the Gulf Coast at $2.52 per gallon.

The price on the West Coast slipped three cents to $2.91 per gallon with Californian’s continuing to suffer with the highest average retail price of $2.98 per gallon, down $0.02.

Diesel

U.S. average diesel price fell for the first time since May 4. The U.S. average price for gallon of diesel fuel fell by $0.01, settling at $2.61 per gallon.

Just like gasoline, the Gulf coast states are paying the lowest average price at $2.57t while the West coast region is paying one of the highest at $2.71 per gallon, both down a cent. And of course California’s are paying the highest price in the country at $2.79.

Where the price will be in 1-month, 3-months, 6-months or even further out is ... probably higher although nobody really knows?

$2.37 here at my normal station, with Wal Mart at $2.33 with a 3 cent discount if you use a WM card.

regards
gary

Sadly, many people have memories that are shorter than their ding-dongs...If prices continue to fall, the demand for more fuel-efficient vehicles may decline.

I'm skeptical of the argument that speculation distorts prices. During the huge runup last year, oil stockpiles weren't increasing despite speculation, because speculators tend to sell their futures contracts before expiry to actual oil consumers rather than take delivery of large quantities of oil. Thus speculators weren't adding any net demand to the market. The problem was a limited supply that couldn't keep up with booming demand ("fueled" by American SUV drivers and growth in developing countries). Oil is so inelastic that a huge price increase is exactly what would be expected when demand approaches supply.

There's a lot more slack in demand for oil at the moment, but that doesn't mean the price "should" be low. The beauty of markets is that they incorporate information about future prospects to determine a price. It's very possible that the world economy will strengthen in the next few years, and demand for oil will recover. If the price of oil is expected to be $100 in a few years due to demand, it would be a huge market distortion for the immediate price of oil to be so cheap that buying a barrel of oil would provide an outsized expected rate of return. Speculators help the market determine a price, and any attempt to curb speculation would likely be an attempt to artificially lower prices in the short term - which wouldn't be a good thing. Oil is a finite resource and it would be terrible policy to make it artificially cheap. My personal belief is that it should be taxed heavily because the price doesn't reflect the limited amount underground, the environmental impacts, or the cost of wars fought over it. These are all externalities that the market has no reason to care about yet.

Hi Aaronl:

___Fuel demand in the US was off last year from 2007 and down another 2% this year so far.

___Good Luck

__Wayne

Thanks for the correction... I guess the primary driver then was demand in developing countries, which no one seriously expected to do anything but grow a year ago.

Grow, anybody's economy? Not right now...

Still, kinda glad gas is cheap now. Makes my measly stipend as a grad student go further.