Why Are Gasoline Prices Suddenly Falling?

Why Are Gasoline Prices Suddenly Falling?
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A dramatic spiral for gasoline prices in some key battleground states comes just three weeks before the U.S. presidential elections.

Ohio voters have watched prices at the gas pump drop by nearly 20 cents on average in the past week. At the same time, retail gas prices have plunged more than 10 cents in Wisconsin and Illinois.

Even in California, where the average gas price in the state reached the highest level on record on October 9 , prices are now a lower by about a dime. Nationally, on average, gasoline prices have fallen 5 cents since last Wednesday to $3.76 a gallon.

If the steep slide in pump prices — as well as the decline in the futures market — is any indication of what is to come, voters in several states may see gasoline prices closer to the $3 mark by Election Day than recent highs around $4 a gallon, some analysts say. (Read More: Forget Renewables, We Need Cheap Oil Now—Analyst )

"I suspect that both candidates can guarantee $3 to $3.25 gal gasoline in Ohio after this week's gasoline debacle, " said OPIS analyst Tom Kloza. "You will see some sharp retail drops in battleground states like Ohio, Pennsylvania, Florida, Wisconsin, and Nevada in the next few weeks."

A series of U.S. refinery glitches and tight supplies in some regions caused gasoline prices to surge earlier this month to the highest prices since the spring. But the switch to a less expensive winter grade of gasoline, weak refinery demand and increase of supplies in certain areas caused gasoline prices to start coming down. An unexpected increase in U.S. gasoline supplies in the past week could cause pump prices to fall even further.

November RBOB gasoline futures —a key gauge of where retail gas prices are headed—closed at the lowest price since Sept. 24 on Wednesday. Futures are 6 percent lower in just a week's time. The rapid decline in the current session came after the U.S. Energy Information Adminstration reported domestic gasoline supplies rose in the past week, when many analysts had forecast a decline. Meanwhile, gasoline demand over the past four weeks continued decline compared to a year ago.

In the end, supply and demand is causing prices to moderate once again.

The fall in gasoline prices "is not the result of political maneuvering, " Kloza said, "but just the normal rebalancing of inventories and the typical autumn sell-off."

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