Don’t count on gas costs staying low

Could the era of cheap fuel be back?

Oil costs one-third what it did this summer. Gasoline prices now average less than $2 per gallon, their lowest level in more than three years. Although California is a bit more expensive – about $2.20 per gallon – prices here are falling every day.

So is this a return to the golden age of inexpensive, plentiful fuel? Probably not, many experts warn.

For one thing, oil still costs roughly twice its historic average. At $49 per barrel, it only looks cheap in comparison to this past summer, when it reached $145.29 on the New York Mercantile Exchange. In addition, the oil bubble did not pop because new supplies of crude suddenly flooded the market. Worldwide oil production has been flat for years. Instead, the bubble popped because the global economy started spiraling into recession, and recessions lower the amount of oil that countries consume. Speculative investors who had driven oil to record heights this summer had been willing to ignore gloomy economic data so long as it seemed confined to the United States. Once it became clear the rest of the world also was sliding, they started selling en masse. Whenever the recession ends, demand for crude will start rising again. So will its price.

San Francisco Chronicle