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June 13, 2012

Outlook for gasoline prices: Going lower


Sentiment in the oil market has turned "bearish," meaning traders no longer think prices are headed higher, and are thus unwilling to bid up the price of crude. In addition to the lessened risk of conflict with Iran, there are worries about a slowdown in the global economy, brought on by Europe's debt problems.

That leads economists like Joel Naroff, of Naroff Economic Advisers, to conclude that the price of just about everything the U.S. imports could get cheaper, or at least not go up in price.

Supply and demand

"Import prices are falling as everyone around the world is trying to sell into the one market where there is some demand, the U.S.," Naroff said, "That means they are willing to take lower prices to sustain their sales."

As a result, he says oil prices are down, further declines in gasoline prices are coming and the U.S. economy is not growing strongly enough for any firm to have much pricing power. At the same time, the value of the U.S. dollar is rising, meaning things that are purchased in dollars - like oil and gold - are getting cheaper.

That fact is underlined in the U.S. Labor Department's Producer Price Index (PPI) for May, which took its biggest drop since 2009. The main factor in the decline? A 4.3 percent decline in the price of energy.

Will the trend last? Who knows? But for the rest of the summer, at least, consumers should enjoy falling prices at the pump.

Story provided by ConsumerAffairs.

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