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Gas Prices Slow to Respond to Drop in Oil Price

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The price of crude oil is plummeting on world markets, but when do consumers get a break at the pump?

The answer: It’s hard to say.

Gas prices in the United States actually have risen steadily over the past several weeks, from an average of $3.63 per gallon (about 96 cents per liter) in late June to $3.76 last week for all fuel grades. The climb only ended with this week’s convulsions in worldwide economic markets, in which oil prices crashed to their lowest levels in a year. This week’s U.S. average gas price was $3.70.

Market woes will continue to exert a downward pressure on gasoline prices, according to Troy Green of AAA, which tracks daily gas prices, but Green could not predict exactly when consumers’ pocketbooks will get some real relief. “There are too many factors involved to try to predict what the price of oil or gas will be several weeks down the line,” he said.

However, the Energy Information Administration–which tries to do just that with its gas prices forecast–trimmed its estimates by about 6 cents per gallon on Tuesday, projecting an average of $3.58 per gallon for regular-grade gasoline in the third quarter of 2011 and $3.44 in the fourth quarter.

Oil traders look to the stock market for signs about investor confidence. When equities increase in value, Green explained, investors are optimistic about the U.S. and world economies, and oil prices increase as well. The downgrade of U.S. debt by the Standard & Poor’s Friday sparked investor panic, causing the Dow Jones Industrial Average to tumble 634.76 points on Monday, its greatest fall since 2008.

Gas prices at the pump are affected by factors such as demand and consumer spending as well as by the price of crude oil, Green said, noting that the demand for gasoline is 2 to 3 percent lower than it was a year ago.

Green said prices at the pump rarely increase or decrease at the same rate as wholesale prices. Gas stations’ profit margins are actually greater on other gas station merchandise–snacks, drinks and so on–than on gas itself. “The price [of gas] is about trying to get you into the store,” Green said. While the wholesale gasoline price fell 11 to 12 cents Monday, it will take time for the drop to work its way through the processing and distribution system.

Green said the release of oil from the Strategic Petroleum Reserve into the market in June caused a momentary decline in oil prices and had a slight trickle-down effect on gas prices. But an upswing in stock market soon drew more money from investors and drove oil prices back up. At this point, the effect of the Strategic Petroleum Reserve has subsided. “It’s about the economy,” Green said.