Hey! What's going on? Back in June, when gasoline prices were heading toward $4 a gallon, I posted a blog strongly suggesting that there was nothing on the horizon that would drive down the cost of the motor fuel.
And now look what's happened. Gasoline is almost $2 less expensive, and every day the price at the pump seems to be a few cents cheaper than the day before.
So what went wrong? Or, more appropriately for us motorists, what went right? In this case, bad news turned out to be good news.
The bad news, of course, is the state of the economy. With stagnating wages, falling home prices and frozen credit markets we're all treading much more softly on the economic landscape than we did a year ago. We're buying less, eating out less, going for entertainment less, and all of that means we're driving less! That's the good news.
Why does it matter? As I mentioned back in June, the world is in a precarious kind of balance between supply and demand. The world's oil producers are pumping about 86 million barrels of crude oil a day, and they're running flat-out to do that. Until recently, the world's oil consumers were using about 86 million barrels a day. Hence the balance. Projections in 2007 and early 2008 for strong global economic growth threatened to tip that balance, make demand exceed supply, and drive up prices.
That's what took place as the price of gasoline at the pump headed toward a U.S. average of about $4.14 a gallon in July. Price were going up all over the planet, unless a government subsidized fuel costs to its consumers.
China, the world's second-biggest energy user, experienced annual economic growth of more than 11 percent in 2007, according to Chinability.com, a Web site about the country's economy. At the time, there wasn't any letup in sight.
Now look what's happened. The International Monetary Fund in August cut its forecast for the Asian nation's growth in 2009 to 8.5 percent , from its previous forecast of 9.3 percent.
Back in the U.S., the economy expanded at a rate of about 2 percent in 2007, but for 2009 the IMF forecasts a stagnant economy with growth estimated at 0.1 percent.
Slowing economies mean people drive less. In the four weeks ended October 31, U.S. motorists used an average of 9.02 million barrels a day of gasoline, according to the Energy Department. In the similar period in 2007, consumption averaged almost 9.3 million barrels a day--about 300,000 barrels a day more.
Taken globally, that decline in fuel use means that there's less of a threat of having demand exceed supply, and so long as that continues, we could continue to see some relief at the pump.