As you can see, gas prices in Michigan have been above the national average for most of the past six months. Detroit prices have only dipped below those of the nation as a whole briefly during mid-May, late June, and early August before their current drop. Grand Rapids has had it even worse, only once falling below the national average once during that same period, also in late June.
Both cities are currently farther below the national average than they have been the entire past six months. Their prices are also at their lowest levels since mid-February, when prices began shooting up as a result of Arab Spring. It's about time the state got some relief, which might help with reducing unemployment.
One of the odd things about the graph is that gas prices aren't dropping as quickly as oil prices. In fact, examination of the chart expanded out to a full year shows that the last time oil prices were this low, unleaded regular was below $3.00/gallon. Right now, one gallon averages between $3.30 and $3.40. Bill McBride of Calculated Risk has an answer for that.
This graph show[s] oil prices for WTI [West Texas Intermediate]; gasoline prices in most of the U.S. are impacted more by Brent prices.We're looking at wrong crude oil index!
New Deal Democrat at The Bonddad Blog shows what comparing gasoline prices to the right index, Brent, looks like.
Before 2011, the prices of WTI, Brent, and unleaded gas all marched along in unison, with the exception being the normal increases in gasoline prices during the summer driving season before the 2008 oil price spike and resulting recession, when that pattern disappered, at least on the national level (one can still see remnants of it in the Michigan graph above with price hikes during summer holidays). After 2011, WTI and Brent diverged, with Brent staying much higher than WTI for most of the year. Gasoline, even in the U.S. kept beat with the cadence set by Brent, leaving WTI to march to its own drummer.
If gasoline is now tied to Brent and not WTI, then what does the graph that I introduced here and reused here say about where gas prices should be?
Brent crude closed yesterday at $104.24 after settling below $104 the day before. According to the chart above, the black regression line suggests a gasoline price of ~$3.25/gallon. Grand Rapids is already getting there, with Detroit not far behind. On the other hand, the U.S. average is about what I predicted in August.
According to the handy graph of the relationship between crude prices and retail regular gas prices that Stuart Staniford at Early Warning has provided, a price of about $88/barrel for oil should translate into a $3.40/gallon at the pump for unleaded regular.We're there already, although that was based on trying to read the relationship between gas and WTI from the upper limbs of the red and green curves, not between gas and Brent.
Prices could go even lower, as BP's CEO sees Brent falling to $90-$100/barrel. At those prices, gasoline should be fluctuating right around $3.00/gallon. That would definitely be an improvement and right in time for Christmas, too.