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Tuesday
Jun122012

The One - Two Punch of Lower Oil Prices

Well, maybe 'punch' is not quite the right word, but whatever you want to call it, American consumers are benefitting in two ways from the recent moves in oil prices.  Over the last several weeks, not only have we seen a 20% decline in the price of WTI crude oil, but Brent crude oil prices have been falling even faster.  As we have pointed out in the past, gasoline prices are typically more positively correlated to moves in the price of Brent crude oil.  When WTI crude oil falls faster than Brent, gasoline prices stay elevated.  When Brent falls faster than WTI, gasoline prices fall faster.

The chart below tracks the spread between the price of WTI and Brent crude oil prices over the last year.  The current spread between the two benchmark prices of crude oil stands at $14.05 and is down more than a dollar today alone.  While this is down from the highs we saw last year, it is still elevated by historical standards (prior to 2011 the spread was never really more than a couple of dollars).  Now, if we could only get this spread back to the single digits, Americans could very well see gasoline with a $2 handle once again!

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