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Gas Prices Won't Stay Down Forever

Consumers have been breathing a collective sigh of relief at gas pumps recently, as prices continue to tumble from monolithic summer heights.

But experts say they'd better fuel up now, because cheap gas probably won't be permanent. As the market realized that sharp economic declines in the U.S. were cascading around the globe, oil prices tumbled from a height above $147 a barrel in July to below $60 a barrel this week. Gasoline followed suit, with the national price per gallon falling close to $2, levels not seen since May 2005, according to AAA. An all-time high of $4.11 a gallon was reached just four months ago.

Still, Amanda Kurzendoerfer, commodity analyst at Summit Energy, says the forces that drove those $100-plus Chevy Suburban fill-ups have only subsided temporarily. She notes that China and other developing countries are still growing at a breakneck pace, and major oil producers have scaled back efforts to develop new resources, due to the credit crunch and economic drag.

"Is $60 oil sustainable going forward, three-plus years?" asks Kurzendoerfer. "Probably not."

While the pervading sense that high energy prices are here to stay seems to have largely evaporated, Kurzendoerfer is not alone in her view. Indeed, notes Brian Milne, refined fuels editor for DTN, oil prices for a year ahead are still $10 above the front-month contract, and those two years ahead are $15 higher. That creates a "contango market" in which investors become bearish for the near-term, but remain relatively bullish on demand further ahead.

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