Why $4 a Gallon Gas Wouldn't Last Long
One of the reasons prices at the pump may fall is that gasoline futures have collapsed. The Wall Street Journalreports 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."
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.