Given geopolitics, shouldn't gas prices be rising?

What, if anything, is wrong with this picture?

Usually, when there's a crisis in the Middle East and other oil-producing regions, consumers see a spike in gas prices.

But according to a new report from the U.S. Energy Information Administration, and despite record levels of demand for U.S. crude oil, prices at the gas pump continue to head south.

The EIA says regular gasoline retail prices fell to an average of $3.61 per gallon last month, or eight cents a gallon below the national average in June. And those gas prices are projected to decline to an average of $3.30 a gallon by December.

Despite the conflicts in Gaza, Iraq, Ukraine and elsewhere, the oil markets are apparently seeing reduced risks to production.

The flow of oil from Iraq, for example, has reportedly remained constant -- despite the fighting there, and threats to several northern oil fields and refineries from insurgent forces.

And in Libya, which in recent months has been rocked by factional fighting, the oil exports continue to flow -- reportedly contributing to a drop in Brent crude oil spot prices -- to an average of $107 per barrel last month, or five dollars per barrel lower than the June average.

Relief is even being seen in some regions of the U.S. where gas prices have been at four dollars a gallon or higher. On Tuesday, AAA Nevada reported gas prices in the state dropped ten cents from July's average, down to $3.91.

"As we approach the end of summer travel, gas prices continue their downward trend," Cynthia Harris, AAA Nevada spokeswoman, said in a statement quoted by the Reno Gazette-Journal. "With ample supplies nationwide, and with no immediate threat to the distribution of oil, Nevadans should continue to enjoy relatively lower prices at the pump."

U.S. crude oil production, boosted by output from the oil and natural gas shale deposits in North Dakota and elsewhere, are helping to keep prices low for the average gasoline consumer. The EIA says total crude oil production in the U.S. averaged about 8.5 million barrels per day in July -- the highest per-month level of production in over 27 years.

And that rise in U.S. domestic oil production has eaten away at the nation's petroleum imports, which reportedly fell from 60 percent in 2005 to around 33 percent last year. That trend is also expected to continue, with the EIA predicting the net import share of oil to fall to 22 percent next year, its lowest level since 1970.

All of this good news for America's drivers depends, of course, on a quiet Atlantic hurricane season and no major new geopolitical surprises -- factors that might upset the world's oil markets.

  • Bruce Kennedy

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