Saturday, October 24, 2009

Gasoline Prices and a Puerto Rico Fire

U.S. gasoline prices usually fall from August to December and rise again from January to June. You may have noticed that prices are not falling the way they usually do this fall. Instead, gasoline prices have fluctuated within the same range they were in during the summer. As of this week’s Department of Energy reading, nationwide gasoline prices are only 12¢ per gallon below the peak prices of June 22.

There are several factors at work propping up gasoline prices. Prices weren’t so high to begin with, when compared to the global oil supply. The lower prices are, the harder it is for them to fall. This month, the most obvious factor keeping gasoline prices from falling is the decline of the U.S. dollar. The U.S. dollar gained compared to other currencies a year ago in a “flight to safety,” as investors saw the U.S. dollar as safer than other currencies during a time of global financial turmoil. That flight to safety is now reversing, and the U.S. dollar is likely to decline for the rest of the year as investors’ one-year certificates of deposit mature. As the U.S. dollar declines, U.S. prices for products produced mostly outside the United States rise. Gasoline is produced in the United States, but most of its value comes from the crude oil it is made from, and the oil is mostly imported.

Another factor driving up prices right now is a fuel depot fire burning in Puerto Rico, in a suburb of the capital city, San Juan. The fire started in an explosion yesterday. The cause of the fire is unknown, but usually this kind of fire starts from a leak in a pipe or valve. It is the kind of fire that firefighters cannot put out, but they might be able to keep it from spreading. This fire might or might not destroy enough gasoline and other fuel to boost national gasoline prices by 1¢ temporarily, but gasoline distributors are likely rushing to raise prices by 2 or 3 cents as a precaution.