Why $4 a Gallon Gas Wouldn't Last Long

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Not long ago, everyone knew gas was going to reach $4 a gallon for regular on a nationwide basis soon. It was a lock -- a sure thing. Now, though, that sure thing is looking iffy: The AAA Fuel Gauge this week shows gas prices wavering. On Wednesday, the cost of regular fell to $3.963. A week ago, the average was $3.982. But on Thursday, prices bubbled back up to $3.984. AAA polls up to 100,000 stations in its survey. On Sunday, however, another report, the Lundberg Survey, said that prices had topped $4 over the past two weeks.

One of the reasons prices at the pump may fall is that gasoline futures have collapsed. The Wall Street Journal reports that "Gasoline prices tumbled 7.6% to $3.1228 per gallon after the U.S. Department of Energy surprised traders by reporting a buildup of gasoline stockpiles in the previous week. Crude oil fell 5.5% to $98.21 a barrel."

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Several other factors could push gas prices down. First, there are hints that China's demand for oil will falter: New data shows that economic growth in the People's Republic is slowing slightly, and the world's most populous country is also its largest net importer of crude, so any decline in its purchases will reverberate throughout the energy markets.

Second, Japan's massive earthquake and tsunami have blunted its demand for oil -- and that nation, too, is a huge net importer. Gas demand there is likely to drop as well, especially in the quake-savaged north of the country.

Gasoline demand in the U.S. has fallen as well, and it could keep dropping. Over the past five weeks, drivers have started to cut back, log fewer miles than they did at this time last year. If that trend continues into the summer driving season, it will become clear that prices had in fact reached the levels necessary to change the behavior of American drivers.

Some industries are also trimming their fuel use -- most notably, the airline industry. Delta recently said it would cuts its capacity by 4% because of fuel costs. Other airlines are likely to follow suit for the same reason.

Even if gas does top $4 a gallon, expect its time at that level to be brief: With such strong factors coming into play to put downward pressure on prices, a drop in the near term seems almost inevitable.
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