By LIAM PLEVEN And CAROLYN CUIAfter a sizzling start to the year, gasoline futures prices are sliding, easing pressures on drivers and the U.S. economy and raising the prospect that prices at the pump could be headed lower still.
Gasoline futures, a key yardstick for wholesale prices, are down 6.3% from their high for the year reached on March 26, as the price of crude oil that gets refined into gasoline has dropped a similar amount amid easing tension over Iran, the world's fourth-largest oil producer.
On Wednesday, futures tumbled for a fourth consecutive trading day, finishing down 1% at $3.2027 a gallon.
The month-long decline already has been reflected in lower pump prices.
The average cost of a gallon of gas nationwide has fallen for two straight weeks, according to the U.S. Energy Information Administration.
The average cost of a gallon of gas nationwide has fallen for two straight weeks, according to the U.S. Energy Information Administration. As of Monday, the average retail price of regular gasoline was $3.922 a gallon, down from $3.941 on April 2, the EIA said. That's a 0.5% slide, less than the drop seen in futures markets.
Joanne Shore, a senior analyst of the EIA, says retail prices typically lag behind those of gasoline futures by a few weeks. About half of the change in futures gets passed through within a week, and the rest tends to show up over the next several weeks, according to Ms. Shore. who follows gasoline prices.
That suggests that there is further relief ahead at the pump. New data will be out next Monday; a third week of declines would be the first such streak since December.
a third week of declines would be the first such streak since December.Any prolonged decline would be welcome news for U.S. consumers at a time when unemployment remains stubbornly high and the economic recovery is showing signs of weakening. Such a decline also would be welcome news for the Obama Administration leading up to November elections in which the economy is expected to be the central issue.
While some analysts say the recent drop in gasoline futures could be little more than a hiatus after a 26% jump in the first quarter, others note there are compelling reasons for the recent decline.
In addition to lower tension over Irandisputed nuclear program, two major east-coast refineries that had been earmarked for closure now appear to be getting a new lease on life. The owners of the refineries, ConocoPhillips Co. and Sunoco Inc., SUN -0.08% are in talks to sell the facilities rather than close them.
Meanwhile, refineries in Europe and the U.S. that had shut down for maintenance are due to come back on line soon, increasing available supplies, Lawrence Eagles, an analyst at J.P. Morgan Chase, JPM -1.16% said in a recent research note.
"What you're seeing in the market is some back-pedaling from the hysteria we saw in February and March," said Sander Cohan, a principal at ESAI, an energy-consulting firm in Wakefield, Mass.
As futures prices drop, investor sentiment appears to be shifting. Hedge funds, pension funds and other money managers are reducing their bets that gasoline futures will rise. Those bets had jumped 35% between early January and early April, according to the most recent government data.
"It was a very overdone trade, and people are getting out of it," said Amrita Sen, an energy analyst at Barclays BARC.LN +0.59% .
This week's declines may be accelerating the trend, say market watchers.
"Money managers were walking toward the exit last week; they seem to be running over the last three days," said Tim Evans, an energy analyst with Citigroup.
Barring a crisis in the Middle East, the decline in prices will persist into next year until the pending arrival of the 2013 driving season provides another spur to prices, said Phil Verleger, an economist who studies the energy markets.
Some analysts have ratcheted down expectations for retail gasoline prices.
While pump prices could still rise to more than $4 a gallon, "I don't think we're going to see a $4.50 peak anymore," Mr. Cohan says.
Gasoline prices, both on the trading floor and at the pump, usually climb higher until later in the spring as the weather warms and the summer driving season approaches.
Last year, for example, gasoline futures prices climbed through the end of April, reaching a high for the year on April 29. Pump prices peaked in May.
This year, the gains may simply have come earlier than usual amid tension over Iran and concern about less refining capacity, analysts say.
Any new flare up with Iran could drive prices higher. And should the refineries fail to find a buyer, the loss of capacity would squeeze supplies, said Mr. Cohan.
"I'm not convinced we've seen the peak quite yet," he said. After years of paring back due to a weak economy, "People might be feeling richer. They may decide this is the year" to take a vacation.
Demand for gasoline, meanwhile, continues to be underwhelming. Government data released Wednesday showed a sharp drop in current gasoline inventories. But even with that deep drop, there is nearly 3% more gasoline on handat the moment than there was a year ago, according to the EIA.
Consumers also are cutting back. EIA said gasoline demand fell 3.2% last week compared to a year prior.
"People have cut back on driving. The price increase alone has caused them to tighten their belts," said Lawrence S. Ray, president of RPC Inc., a Randolph, N.J., firm that supplies 15 gas stations in northern New Jersey.
An increase in new car purchases recently is also contributing to greater fuel efficiency, said Joachim Azria, an analyst at Credit Suisse CSGN.VX -0.63% .