Monday, August 15, 2005

Prices Now, Prices Later

Recent news about rising gasoline costs has a lot of people worried about an impending oil shortage and indefinitely rising prices. In the news today, you might read stories such as this one, Nationwide Gas Prices Set Another Record, with images of cars lined up outside a gas station in Oregon and an image of a sign advertising $3.09/gallon of regular gasoline.

The average price for all three grades rose nearly 20 cents to $2.53 in the three weeks ending Aug. 12 ... In the same three-week period, crude oil price futures rose about $8.21. A barrel of oil produces about 42 gallons of gasoline, resulting in a price increase of 19.6 cents per gallon - nearly identical to the 19.8 cent rise in the price of gas at the pumps, Lundberg said.

I'm not worried. We're not running out of oil. Prices rose due to unsubstantiated fears of energy shortages, resulting in part from some difficulties refineries had been facing. In financial news today, futures prices for oil have dropped.

U.S. light crude was trading at $66.41 a barrel at 1009 GMT, down 45 cents having surged more than $1 on Friday to touch a record $67.10. London Brent crude was down 28 cents at $66.17.

Geoff Pyne, energy consultant for Standard Bank, said much of the recent rise was caused by fear and speculation. "The price run-up is not fundamentally supported," he said ...

Some refining units at U.S. oil facilities have finally returned to service from a spate of shutdowns since late-July, which propelled U.S. gasoline to historical highs.

I'm not rushing to the gas station to fill up my half-full tank. My bet: prices will stay about the same and drop by some amount in about a month. The current rate of increase will not continue indefinitely because there are no valid, long-term reasons for its sudden increase.

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