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Gasoline prices tank

Gasoline prices tank

Gasoline spot prices broke major support this week, falling over 10%. Gas prices have been stuck in a trading range for the past 3.5 years, fluctuating between $2.50 and $3.40 per gallon. Prices broke out of this channel on Tuesday, falling to $2.38 per gallon by the end of the trading day on Friday. Gasoline prices are down about 23% from the highs of $3.10 reached this past June.

 
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US gas prices at the pump are currently averaging $3.33 per gallon. Analysts expect prices to dip below $3 per gallon by the end of year, marking lows not seen since the market meltdown of 2009. Some of the possible causes for the dramatic drop in gas prices include:

Economists estimate that every drop in gas prices translates into $1 billion being pumped into the US economy. Falling gas prices could therefore provide much needed economic stimulus for our neighbours to the south.

  • Refineries were operating at record output levels this summer, resulting in high gasoline supplies.
  • October marks the end of the driving season, which should see a reduction in gas consumption.
  • There are no hurricanes foreseen in the US Gulf Coast this year, therefore, no significant supply disruptions in the near term.
  • Gasoline consumption appears to be steadily declining in the US, mostly due to the purchase of more fuel efficient vehicles.
  • The sudden (and unexpected) rise of the US dollar which is dragging down all commodity prices, including crude oil, which is also down over 15% from the summer highs.

Falling gasoline prices have an important impact on US consumer spending. It is estimated that every 1 cent drop in gasoline prices translates into an extra billion dollars injected into the US economy. Therefore, if gas prices continue to be weak through the end of the year, traders should expect a healthy Christmas shopping season.

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