Gas Prices Rising Again

Things are looking a little better for the economy than they were a couple of weeks ago, right? True, unless you happen to buy a lot of gasoline.

With sentiment on Wall Street beginning to turn bullish again, energy prices are going up. The national average price of self-serve regular today is $3.617 a gallon, up nearly four cents in the last week, according to AAA's daily Fuel Gauge Survey.

The price of gasoline is down 9.2 percent from its May 5 high of $3.985 a gallon while the price of West Text Crude is down 12 percent from recent highs. Oil prices began dropping a few weeks ago when economic data suggested the U.S. economy was slowing down again. Now that the outlook has improved, somewhat, oil prices are climbing again.

More stimulus?

One reason the outlook has improved is the growing belief that the Federal Reserve will step in with a third round of stimulus. It may be no accident that the acceleration in oil prices began in the fall of 2010, just as the Fed launched its plan to pour liquidity into the economy. Some economists said that drove down the value of the dollar, thus making oil, which is purchased with dollars, more expensive.

From a supply standpoint, there seems to be plenty of oil. But there has emerged two different prices for it. Brent crude – much of which comes from the Middle East – costs about $26 a barrel more than oil from Texas. Unfortunately, the U.S. imports a lot of Brent, making gasoline from the refineries using it cost more.

Powerful rumor

Now, all oil seems to be headed higher again. A rumor sweeping Wall Street this week says Goldman Sachs purchased three million barrels of West Texas crude for February delivery, a very bullish move if true. Though unconfirmed, the rumor has been enough to spark buying in the oil market, pushing prices sharply higher Tuesday.

What all this may mean for the average motorist is an end to falling gasoline prices. We may have already seen the low, at least in this cycle. Even without hard data showing the economy is actually getting stronger, oil prices might continue to rise on traders' expectation of a cheaper dollar.