Gasoline prices falling in Q-C

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By Thomas Geyer | Friday, October 10, 2008 10:33 PM CDT | () comments

Not all the news on the financial front is bad.

Gasoline prices are dropping furiously in the Quad-Cities as global demand for oil weakens, U.S. fuel demand wanes and the U.S. dollar grows stronger.

Many stations in the Iowa Quad-Cities were selling gasoline Friday below $3 a gallon. Several had already dropped as low as $2.73 a gallon.

Regular unleaded reached a high of $4.08 in the Iowa Quad-Cities on July 16, according to a report issued Friday by AAA in conjunction with the Oil Price Information Service and Wright Express. In the Illinois Quad-Cities on July 16, regular unleaded hit $4.24 per gallon, according to the report.

The drop in prices is the silver lining to the current credit crunch, said Doug MacIntyre, an oil analyst with the Energy Information Administration, the statistical arm of the U.S. Department of Energy.

Demand for oil and gasoline is expected to continue to drop both in the U.S. and abroad because of the global financial situation, he said.

In terms of gasoline usage, he added, “we’ve already seen huge drops in demand here, around 4 to 5 percent on a four-week average basis, which is very substantial.”

MacIntyre said analysts are expecting oil and gasoline demand to be weak through the rest of 2008 and that could extend through 2009. No one, he said, is prepared to speculate on how low gasoline prices may go.

Oil is the largest cost component of gasoline, so as the price of oil has plummeted so have gasoline prices. From a high of $147.27 a barrel on July 11, light sweet crude for November delivery dropped to $77.70 Friday on the New York Mercantile Exchange.

Another part of the equation is the strengthening of the dollar, said Ted Woodruff, an economist at St. Ambrose University, Davenport.

“There’s a strong correlation between a weak dollar and higher oil prices, and a stronger dollar and lower oil prices,” he said.

That stronger dollar is a good thing, he said, because it also means an easing of inflationary pressures that have put a pinch on consumers’ wallets.

Woodruff said the dollar is stronger because foreign countries that had invested in U.S. mortgage-linked securities are doing poorly now.

“They put too much trust in the American economy,” he said. “The stronger dollar means other nations are doing worse than we are.”

The nation is in the current situation, Woodruff said, because “the interest rate was too low for too long, which means the money supply was too much for too long, which means credit was too easy for too long and people over-extended themselves by borrowing more than they should have.”

St. Ambrose economist Greg Bereskin, an energy expert, said the “speculative fervor” during the past year also had driven the price of oil too high in the first place.

“We’re seeing a movement back to a more reasonable long-term level relative to demand in the world,” he said.

The Quad-Cities is seeing the phenomenon of $2.73 a gallon at several Iowa stations while across town the same fuel is being sold for $3.09 a gallon.

Dev Bastola, owner of the Sara Mini Mart on River Drive in Davenport, said there are several reasons. One may be the station is using up the higher-priced stock of gasoline. Another reason revolves around the margins on gasoline the owners want to get.

“They may want to have lower margins on gasoline to get more people inside the store,” he said. “Or they may go ahead and have higher margins on gasoline.”

Bastola said people are happy that the gasoline prices are going down. While it has helped his in-store sales somewhat, “it’s still not as much as we had hoped it would be at this point.”

Thomas Geyer can be contacted at (563) 383-2328 or tgeyer@qctimes.com.