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Oil Prices Surge – But Gas Prices May Drop

Weak U.S. economy a factor in both trends.

by on Oct.11, 2010

Few expect the current rally in oil prices to be sustained for long.

Fears of a weakening dollar and the likelihood of further intervention by Washington has led to a short-term rally in petroleum prices – but the same factors will likely result in a longer-term decline in what U.S. motorists pay at the pump, according to various industry reports.

Benchmark crude oil prices are nudging $83 dollars on markets in Europe and the U.S. and could push even higher, according to a new report by Germany’s Commerzbank.  Analysts cite factors such as the weakening U.S. dollar – oil is priced in the American currency – and the general belief that the U.S. Federal Reserve will soon intervene to assist the economy, whose weakness was underscored by a bleak September report on jobs.

“The growing certainty of further quantitative easing by the Fed has weakened the U.S. dollar, lent support to equity markets and caused commodity prices to rise again,” the Commerzbank report warned.

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Crude oil prices account for about 55% of the cost of what a U.S. motorist pays at the pump – with distribution costs and taxes making most of the remainder.  And with a barrel of oil typically yielding about 20 gallons of refined gasoline – along with kerosene, diesel and other distillates – each $1 rise in petro pricing adds roughly 3 cents to the cost at the pump.