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Memorial Day: Good News on Gasoline Prices, and It May Get Better

This Memorial Day weekend, motorists will find gasoline plentiful and at the lowest price it’s been for two years. Good news. And it may get better.

With the price of crude oil hovering around $90 a barrel on Tuesday – down $1.78 a barrel and the lowest it’s been in more than half a year – some energy analysts believe it looks as if the price for the rest of the summer could be coming down even more.

And all this just two months after dire predictions of record-high summer gasoline prices.

This weekend, prices at the pump on a national basis should average about $3.66 a gallon, predicts AAA, the national motorists club. This is down 26 cents a gallon from the peak of $3.94 a gallon set in early April.

However, gas prices could be as low as $3.33 a gallon in South Carolina and as high as $4.32 a gallon in California. West Coast prices have remained high in part because of some refinery issues, say energy experts.

“For the start of the summer driving season motorists will see prices cheaper than they were a year ago, which is welcome relief for the 34.8 million Americans that AAA predicts will travel this Memorial Day weekend,” says Avery Ash, manager of regulatory affairs for AAA in Washington. “Heading into the summer, our expectation, based on current market conditions, is that there is room for prices to continue to move downward.”

Energy analysts say that falling prices at the start of the summer driving season is a positive sign for consumers’ pocketbooks. Gasoline is a staple that most Americans purchase – the average household will spend about $3,000 this year at current prices – so any reduction in price gives them additional money to spend on discretionary items. The price reduction also helps consumers psychologically: as the price approached $4 a gallon on a national basis they felt increasingly squeezed.

“Lower gasoline prices at a time when the economy is not getting worse, combined with good weather, will make a lot of people happy this weekend,” says Jeff Lenard, chief spokesman for the National Association of Convenience Stores in Alexandria, Va. “We expect busy stores this weekend.”

Typically, US gasoline demand does not peak until July 4th, notes Sander Cohan, a principal at Energy Security Analysis Inc. in Wakefield, Mass. However, he says the ramp up to Memorial Day can “set the tone for the rest of the summer.” This year the ramp up has been characterized by gasoline prices falling for seven consecutive weeks.

On Wednesday, the price of crude oil – the major ingredient in producing gasoline – dropped almost $2 a barrel at one point during trading on the New York Mercantile Exchange, a futures market.

The high this year is $110 a barrel. Some energy experts said the price has been under pressure because of reports of diplomatic progress being made over access to Iran’s nuclear facilities. Because of worries about the possibility of conflict in the region, the price of oil has carried what some traders called a “risk premium” of about $20 a barrel. But, if the risk of war is diminished, that premium could come down, they say.

But, there are also some large economic forces at work as well. At a press briefing on Wednesday, John Felmy, chief economist at the American Petroleum Institute, says he suspects the decline is a continuation of the market’s reaction to the on-going Eurozone crisis, worries that Europe would go into a recession, slow US economic growth, and less robust growth from China.

Supplies could also be more ample. “We have indications, but not good data, of additional supplies from Saudi Arabia,” says Mr. Felmy.

Only two months ago, there were predictions gasoline prices would pass their all time high of $4.11 a gallon set in the summer of 2008. President Obama considered releasing oil from the Strategic Petroleum Reserve. Republican candidate Newt Gingrich claimed he would bring the price down $2.50 a gallon.

“Since gasoline prices have started to decline no one is saying gasoline prices will be an election issue,” says Mr. Lenard. “Yes, gasoline prices are still too high, but things are looking up.”

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