Gasoline prices appear to be low and going down due to a number of factors. First, the small portion of refinery and well production from the Gulf of Mexico (GOM) appears to be focused heavily on gasoline production to the exclusion of heating oil, diesel, jet fuel, etc. Second, the available oil for the short term is plentiful because the Strategic Petroleum Reserve (SPR) has been loaning out oil to oil companies to keep product flowing while the GOM wells, platforms, and rigs are repaired. The SPR loan period is just about over now though. Third, Europe stepped up to assist us, shorting their own consumers slightly in order to export gasoline to the US. This can be seen in increased gasoline imports as reported by the EIA. Unfortunately for the delusion commodities market, this bonanza is about to end. The SPR loan will have to be repaid. The GOM production is still sitting at about 65% oil shut-in and 55% natural gas shut-in. Thus we are only getting about 500,000 barrels of oil per day (bpd) from the GOM whereas we normally were getting 1,500,000 bpd. Because of this, we've had 2 months of shortfall meaning that the US has lost close to 60 million barrels of oil production. That is roughly equivalent to 3 work days of production for the entire US and it's not over yet because the repair period for the GOM infrastructure will run well into 2006. In short, expect prices to spike back upwards when the real limits of what we can produce start to be felt in the market. These limits are why heating oil is going to be expensive this year and why diesel already is.

I've actually been thinking much the same recently. With most Gulf oil and natural gas production shut in, how in the world have gas prices gone down? Considering how important holiday shopping is to the U.S. economy (consumer spending and all) it wouldn't surprise me a bit if prices were deliberately being held down...until mid or late January that is. Come to think of it that should also be the time potential natural gas & heating oil shortages will likely also begin. I'm shopping a lot this holiday season - not for gifts but rather for non-perishiables, garden supplies for next spring, and emergency items for the house.