5 things you need to know about: low gas prices

By Jennifer Davies

Friday, December 5

During the summer, as oil prices surged, economists and energy experts predicted that prices could soar as high as $7 a gallon by 2012. But now we are looking at the lowest prices in almost five years, with the average price per gallon in San Diego County hitting $1.87 on Thursday. So how did the experts get it so wrong? Here's the rundown:

Demand. A silver lining to the increasingly bleak global economy is that emerging giants like China and India have cut back – way back – on oil consumption, easing demand and allaying fears about future demand.

Changing habits. With gas prices exploding over the summer, Americans finally began to change their driving patterns. Nationwide traffic in September was down 3 percent compared with a year earlier.

Speculators. When oil hit $147 a barrel in June, speculators were widely considered responsible for the run-up. Those speculators put money into oil futures figuring oil would only continue to rise because of surging global demand. But when financial markets crashed, so did oil futures. Another byproduct of the financial crisis is that those very speculators who were driving up the price of oil are now cash-strapped, so they can no longer make big bets on the future prices of commodities.

Timing. Believe it or not, this time of year usually sees the lowest gas prices in San Diego. The reasons? For one, gas prices nationally drop as people drive less because of bad weather back East. Also, in the summer, refiners have to mix in expensive anti-pollution additives that aren't required in the fall and winter.

Fear of a green economy. According to Charles Langley, a fuel price specialist at the Utility Consumers' Action Network, oil producers are lowering prices because they are concerned about President-elect Barack Obama's plans for boosting investment in alternative fuel technologies. By cutting prices, they are hoping to make those green energy plans seem less imperative to the public at large.