Oil Prices Fall to New Lows in 2011

Oil (NYSE:USO) prices have fallen to new lows for 2011 after Standard & Poor’s downgraded the U.S. government’s credit rating. However, while the news might seem good to consumers, analysts are likening the commodity’s decline to an obese man who is finally losing weight, but due to a serious illness rather than a healthier diet and exercise.

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According to Fadel Gheit, senior energy analyst for Oppenheimer and Co. in New York, oil prices are falling because demand is falling. Gheit further states that the falling demand has nothing to do with any positive economic signs, but is rather the result of Americans trying, or even being forced, to spend less.

Gheit also added that soaring oil (NYSE:USO) prices in the spring were not conversely a sign of economic improvement and real demand, but rather the result of speculators driving up prices. “It was another bubble,” Gheit said.

U.S. benchmark West Texas Intermediate crude (NYSE:OIL) fell by $3.33 a barrel today to $83.55 on the New York Mercantile Exchange, breaking the year’s previous low of $84.32 a barrel set in February. European benchmark Brent North Sea crude fell by $3.40 to $105.97 a barrel on the London ICE Futures exchange. Retail gasoline prices are expected to follow shortly.

The average price of a gallon of gas (NYSE:UGA) in the U.S. has already fallen from $3.705 last week to $3.663 today. In California, where gas usually costs as much as 50 cents more per gallon than the rest of the country because its fuel blend is more expensive, prices have fallen to $3.79 this week from $3.816 last. California Reformulated Gasoline Blendstock for Oxygenate Blending, or CARBOB, fell from $2.90 a gallon last week to $2.65 a gallon today. Usually about 60 cents is added to that price for the finished fuel.