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August 22, 2008

Why gas prices could go down?

In recent weeks there's actually been some good news on gas prices. They've stopped rising and have even retreated somewhat. What's going on? Many forecasters saw no end in sight to the seemingly relentless rise in prices. Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, I think we can all collectively pat ourselves on the back for this trend. The real issue here, of course, over the long run has been that gas prices went up because worldwide demand for gas is increasing faster than the worldwide supply, and that's basic 101 economics. But in response to the higher prices - and, of course, in our country, we got up above $4 a gallon - eventually, economists knew that people would change their behavior, and now we're getting numbers out showing that we have changed our behavior big time. In fact, for the month of May, nationwide, driving is down about 5 percent. Now, that may not seem like a lot, but that is a big dip when you consider the oil and gas markets. So what this means is if we're driving less that means demand, in economics lingo, is going down. You've still got the same supply, so that will put downward pressure on prices. And in fact, this is exactly what we're seeing. We're seeing oil prices trend downward. As oil prices go down, we're going to see gas prices go down. Now, the big question is: Is this temporary or is it part of a trend? No one knows exactly, although there are some forecasts out there that suggest that we could see a downward trend - not every day - but a downward trend in oil and gas prices for, perhaps, two years."

Posted by Dave at August 22, 2008 08:00 AM