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Shale Oil & Gas Business Magazine is a publication that showcases the dynamic impact of the Texas energy industry. The mission of SHALE is to promote economic growth and business opportunities and to further the general understanding of how the energy industry contributes to the economic well-being of Texas and the United States as a whole. Shale’s distribution includes industry leaders and businesses, service workers, entrepreneurs and the public at large.

Today’s Shale ‘Splainer: Hey, Why Are Gasoline Prices Suddenly Falling?

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This past Saturday I stopped in at the local Valero station to fill up my gas-guzzling SUV and lo and behold, the price for premium was ten cents lower than it had been only a few days before!  Many readers have no doubt had the same positive experience the last few days, as the U.S. Energy Information Administration data shows that the nationwide price at the pump for gasoline has begun to fall over the past two weeks.

It’s’ interesting to note that this is happening just as schools have let out and Americans have begun to hit the road in earnest as the annual “summer driving season” gets fully underway.  In other words, we have an odd situation in which the price for a necessity is coming down at exactly the same time demand for it is reaching its annual peak point.

So, how is that happening?

Well, the answer is very simple:  gasoline is derived at our nation’s oil refineries from crude oil, and the global price for crude oil has fallen significantly over the last three weeks.  The price for West Texas Intermediate (WTI) has gone from a peak of almost $73 per barrel down to a low of around $65 last week, and currently sits just over $66.

The folks at Gasbuddy.com show that the average gas price has fallen almost 3 percent in the past week, and we can expect it to drop even more in the next two weeks.  This is because the gasoline price always lags several weeks behind significant changes in oil prices, since the gasoline you put into your tank today was likely refined from oil produced several weeks ago.

We all like to get mad at the nebulous “big oil” whenever it starts costing us more to fill our tanks with gasoline, but the reality is that this year’s initial rise in gasoline prices were largely a function of the price for crude rising 20 percent early in the year, and this more recent fall in gas price is a function of that same price falling signficantly.

This is how markets are supposed to work, and as much as we’d love to believe it’s all some big conspiracy, the truth is that the oil and gasoline markets are working just fine.

This concludes our Shale ‘Splainer for June 13, 2018.

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