Falling oil futures should be felt at gasoline pumps in November

Last October, I remember thinking that $2.77 was an outrageously high price for a gallon of regular gasoline.

Now I'm thankful that the average price for regular in the valley has fallen below $3.20 a gallon.

According to the Web site, www.vegasgasprices.com, the median price for a gallon of regular gasoline in the valley last week was $3.18.

What a difference a year makes: a 15 percent increase.

Still, the price of light sweet crude oil, the majority ingredient in gasoline, has been dropping since it reached a record high of $147 a barrel in July.

It's now $72.

That's eight bucks a barrel less than it was in October 2007, when its price on the New York Mercantile Exchange was about $80.

To recap: Crude oil down 10 percent, gasoline prices up 15 percent from the same time last year.

I can hear your teeth grinding.

I've had readers ask me why the price of gasoline has not dropped in recent months at the same rate as the price of oil?

And I bet you're wondering if valley petrol stations are gouging their customers.

I won't deny that some stations probably have inflated the price of gasoline to earn a more sizeable profit.

But what we consumers must understand is that a barrel of light sweet crude is traded as a future.

The oil futures being sold today still must be refined into gasoline and delivered to fueling stations.

So the price of an oil future won't be felt by consumers until next month.

So basically, if this all holds true and there's no price gouging going on, Las Vegas Valley residents should end up seeing gasoline prices around $2.80 around the middle of November.

According to the experts, the falling price of crude oil futures is in large part due to a drop in demand because of the slumping world economy.

Here in the United States, we hold the title as the largest oil consumer in the world. MasterCard reported that the average national demand for gasoline dropped 9.7 percent compared to the same time last year, according to a Reuters report.

That has induced a surplus in oil supply, which in turn has brought about a downward spiral of oil prices.

And that has bred panic over at the Organization of Petroleum Exporting Countries, or OPEC.

Because of the falling price of crude, OPEC moved up a previously scheduled Nov. 18 emergency meeting to Oct. 24 to deal with the situation.

The president of OPEC has been quoted recently as saying the optimum price for a barrel of crude oil is between $70 and $90 a barrel.

To me, it seemed like everyone was doing fine when a barrel of crude oil cost $60 in August 2007.

But if the demand keeps decreasing, the price of oil will keep dropping, and that means no new golf courses or Rolls Royces for some royal families in the Middle East.

And that's just unacceptable.

More likely, in response, OPEC will cut production of oil and lessen the supply, increasing the demand and therefore causing the price of oil to stabilize, if not increase.

The good news is stabilizing the price of oil means we won't see $4.25 a gallon during the holiday travel season.

If you have a question, tip or tirade, call the Road Warrior at 387-2904, or e-mail him at roadwarrior@reviewjournal.com or fmccabe@reviewjournal.com. Please include your phone number.