The spot price for WTI crude briefly fell to $90.27 this morning and still trades well below yesterday’s closing price of $93.51. The AAA Daily Fuel Gauge reports that the average U.S. pump price for a gallon of regular gasoline sits at about $3.56 today, which is $0.06 a gallon less than it cost a week ago and more than $0.30 a gallon below last year’s price. And all the signals are that the price will continue to fall.
Consumer sentiment fell sharply — and unexpectedly today — and U.S. retail sales were also lower. Part of the reason for the lower retail sales turned out to be lower gasoline sales, even though the price was dropping. U.S. drivers take to the roads less because they don’t have the will, or perhaps the money, to go shopping.
That’s not likely to change next week. Recent demand estimates from both OPEC and the International Energy Agency (IEA) predict a drop of around 800,000 barrels a day in 2013. A healthily growing global economy uses more oil; a slowly growing economy uses less.
The price spread between a barrel of WTI and a barrel of Brent is currently around $10.75 a barrel. The price of gasoline is tied to the price of Brent, not the price of WTI, and for every $1 change in the price of a barrel of Brent, the price of gasoline changes by about $0.025. Brent currently trades at around $102 a barrel and at that price a gallon of gasoline should cost about $3.40 within a few weeks.
That’s good news for U.S. drivers, but it’s wrapped in bad news. The falling price for crude indicates that demand is softening as the global economy continues its snail’s-pace growth. If the economy doesn’t grow, wages don’t rise and unemployment doesn’t fall. Gasoline prices may keep falling, but only because there are fewer consumers willing to pay for it.