Summer gas prices will continue to drop

Just as we've said previously, gas prices may have been higher this spring than they were in 2008, but as we can already see, thanks to this great chart from Kelley Blue Book, prices retreating earlier in the summer than they did three years ago. Here's why it's happening and why the rest of the summer those prices will continue to drop.

According to the wise gas pricing gurus at Kelley Blue Book in their recently released, and aptly-named, Blue Book Market Report:

Gas prices already have declined $0.40 per gallon since mid-May, and there is a strong likelihood of additonal softness moving forward. While fuel prices have performed similarly to the last run-up in 2008, they peaked earlier this year and are widely expected to continue to decline through summer. There are several factors that are likely to continue to push down both gas and oil prices moving forward.

1. President Obama recently announced that the United States will release 30-million barrels of oil from strategic reserves. This should provide some temporary relief, but when we consider that the U.S. consumes approximately 18-million barrels of oil per day, this is not likely to have a lasting impact.

2. Saudi Arabia announced plans to increase oil production to 10-million barrels per day starting in July. Even if they don't fully live up to their commitement, an increase in production from a major player such as Saudi Arabia should provide relief to any supply concerns.

3. The International Energy Agency (IEA) recently announced that they would release 60-million barrels of oil from member nations' strategic reserves at a pace of 2-million barrels per day, 30 million of which will come from the United States. This should provide further relief to the increased supplies being provided by Saudi Arabia.

They continue by pointing out that:

The severe drop in 2008 was the result of rampant speculation coupled with the near-total collapse of the U.S. economy. We may not be able to predict the bottom of the market, but we do expect prices to drop through summer, and as fuel prices continue to decline, values of fuel-efficient used vehicles will drop. While oil prices and subsequently gasoline prices will continue to fall based on increased supplies, a 15 percent decline will not send the industry into the tailspin experienced in 2008, when near 40 percent declines were seen across the board.

Image Credit: Kelley Blue Book