The $4 Gas Threat: A Possible Drop In Price

AAA Fuel Gauge Regular Price: $3.985.

For the first time in weeks it seems that the average price of regular gasoline will not breach the $4 mark nationwide. Oil sold off sharply to under $100, which broke a 14 day string of advances. MasterCard SpendingPulse and Energy Information Administration report that gasoline demand in the US has now dropped steadily over the last six weeks.

Supply and demand may not matter in the short term. Station owners are anxious to profit while they can and it would be hard for consumers to fault them if the price rises another two pennies. Government scrutiny of gas prices will probably come, but there is no indication that will happen soon. But, profit alone does not cause gas price increases. The wholesale price of gas may has already begun to fall.

Another reason that gas prices may back down is that the Easter shopping season is over. April retail sales at some large national chains were up 10% or better as Easter came unusually late in 2011. The summer driving season will not start until Memorial Day. That may cause a month-long drop in demand which could delay $4 gas prices until June.

Analysts did not expect the large rise in the sales of small fuel-efficient cars in April when GM (NYSE: GM) and other large manufacturers reported numbers. GM in particular said its 26.6% rise in units sold compared to the same month last year was due almost entirely to the demand for its new models, most of which are small and run on 4 cylinders or 6 cylinders. Other manufacturers that specialize in smaller cars and light trucks also had surges in sales. Hyundai reported an increase of 40.3% and Kia of 56.7%.

The press has reported almost universally that $4 gas prices are inevitable. The reasons for that reporting have changed in a matter of days.

Douglas A. McIntyre