A possible 50% drop in oil prices doesn't mean $2 gas, but a cut of some sort is expected.
Improved fuel efficiency of vehicles and rising oil production in North America are two factors that could cause oil prices to drop 50% by the end of the year, according to one oil company executive.
Oftentimes a dramatic drop in oil prices ? in this case down to $50 a barrel ? portends a severe economic crisis; however, Gulf Oil CEO Joe Petrowski suggested the issue is matter of ample supply and lower demand.
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?Demand is weak internationally,? he said. ?But domestically demand is even slightly weaker. Traveling (by car) is picking up, but we?re using much less oil. It is simply more fuel efficient cars and switching to alternate fuels.?
Petrowski also noted that North America is ?producing record amounts of oil and natural gas,? adding that OPEC suppliers are up as well. Additionally, demand from countries like China has ebbed, while the utilities sector has also cut its use of oil.
While the demand is going down and the price for oil could drop significantly, there are still plenty of other factors that contribute to the price of gasoline. Petrowski estimates that a shortage of pipelines and the need to transport fuel via rail and truck adds about 40 cents a gallon to gas prices.
?Remember: $50 oil does not translate into $2 gasoline,? he said.
It should be noted that gasoline prices began dropping around the July 4th holiday and were predicted to continue dropping; however, that prediction was false as prices began rising.
The national average for regular unleaded gasoline Wednesday was $3.65 a gallon, up from $3.50 last Wednesday and four cents above levels a month ago, according to AAA Fuel Gauge Report.
The AAA daily tracking of gas prices rose another penny Thursday to $3.66 for a gallon of self-serve regular, the 11th straight day of rising prices. Gas is up nearly 20 cents a gallon, or about 6%, during that period.
(Fuel prices slide in time for Independence Day. Click Here for more.)
There?s at least a 50% chance gas could top the $3.78 a gallon high for the year reached in February, according to Tom Kloza, chief oil analyst for GasBuddy.com.
(Click Here to read about Americans blaming oil company for high gas prices.)
A drop in the crude oil price has several implications, not the least of which is the potential for the destabilization of the governments who rely on oil income for social programs, such as Saudi Arabia. Any perceived lack of stability tends to inflate gasoline prices, Petrowski noted.
Tags: AAA gas price index, Gulf Oil, Joseph Petrowski, TheDetroitBureau.com., crude oil prices, gas prices, michael strong, oil prices, thedetroitbureau
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