Oil and Gas Prices Being Manipulated Before Presidential Election?

Over the last two months, the price of oil has declined nearly 28%, falling from a record high of $147.22 to Friday’s closing price of $106.23.  Likewise, the price of gasoline has declined more than 11%, falling from a record high of $4.12 to today’s average price of $3.65.

These price declines have come as a relief for many Americans, as they have helped ease the pain at the pump and pushed down inflation in general.

However, as welcome as these price declines have been, some drivers believe they’re coming about due to reasons beyond supply and demand or economic weakness.

According to a recent poll on Daily Fuel Economy Tip, nearly half of us feel that the prices of oil and gasoline are being manipulated leading up to the November Presidental election.

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Oil Analysts Can’t Seem to Get it Right

Back during the spring and early summer, as the price of oil climbed higher with each passing day, it seemed that every energy analyst was saying the price of oil would climb to and stay within the $150 to $200 range within months, if not weeks.

Of course, this sort of fed on itself, and was a major driver behind escalating oil prices, which eventually topped out at $147.11 a barrel on July 11.

Since then, the price of oil has fallen to $107.89 – a drop of over 25%. This recent decline, brought about thanks to a stronger dollar, weaker economies and declining worldwide demand, has made many analysts do an about face and predict that oil will now continue to fall and end the year within the $80 to $100 range.

Maybe if their energy analyst gig doesn’t work out, these people can find work as weather forecasters.

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Oil Down 20%, Gasoline Down 8% – And This Isn’t a Bad Thing

Since July 11, the price of oil has fallen from an intra-day trading high of $147.11 to today’s closing price of $115.01 – a decline of 21.8 percent. During the same time frame, the price of gasoline has fallen from $4.09 to $3.78 – a decline of 7.6 percent.

On the surface, the slower decline of the price of gas should be cause for outrage – after all, nobody like paying this much to simply get around in their car or truck. However, things could certainly be a lot worse.

For example, we should count our blessings that the price of gasoline hasn’t followed the same path as the price of oil. Over the last 12 months, the price of oil is up over 65%, even when taking the recent decline. Over the same time, the price of gasoline is up only 36%.

Thankfully, as the price of oil quickly climbed higher starting in January of this year, it took a long time for the price of gasoline to start making a substantial climb upwards.

For example, in this graph provided by GasBuddy.com, you can clearly see that the slope for the price of oil is much more dramatic than that of the price of gasoline.

If the price of gasoline had mirrored the price of oil, we wouldn’t have been complaining about $4 gas this summer, because gas certainly would have hit over $5, and we’d currently be paying about $4.50 for a gallon of gas.

Much of what shielded us from $5 gas – namely, oil refiners – will be the main reason we likely won’t see a drastic drop in the price of gasoline over the coming weeks and months. This mainly due to the fact that someone had to “eat” the higher raw costs that weren’t being passed along to consumers. That someone was the oil refiners.

Oil companies knew that if they raised gasoline prices in step with oil prices – the price of oil accounts for roughly 75% of the price of gasoline – people would be forced to drastically cut consumption. (Which was something we started to see with $4 gas, so just imagine how much more pronounced our adjustments would have been had we seen $5 gas.)

Since the price of oil was determined by the market, and the price of gasoline was essentially being determined by what people were willing to pay before demand became squashed, the only place were oil companies could squeeze margins to account for the costs that weren’t being passed along was in the profit margins of refiners.

Now that the price of oil has eased a bit, these refiners aren’t going to be as willing to pass along the savings; after all, this is a business, and the financial goal of every business is to be as profitable as possible.

So, long story short – be happy with just an 8% drop in the price of gasoline because the lead up could have been a whole lot worse.

Gas Prices Continue to Fall, At Lowest Level in Nearly Two Months

Thanks to decreased demand and falling oil prices, the national average price of gasoline has fallen each of the last 13 days, and is now at levels not seen since the end of May.

Since hitting its record high of $4.12 per gallon on July 15, the price of gasoline has fallen 19 cents – over 4% – and now stands at $3.93, a price not seen since May 29.

According to Gasbuddy.com, Hawaii is reporting the highest state-wide average price at $4.55 per gallon, while Oklahoma is reporting the lowest state-wide average price at $3.62 per gallon. Eleven states and Washington, D.C. are reporting an average price above $4 per gallon.

Much of the decline in gasoline prices can be directly attributed to the fact that Americans have started adjusting their driving habits in order to compensate for having to pay more at the pump. For example, according to Federal Highway Administration, Americans drove 9.6 billion fewer miles in May 2008 than in May 2007.

According to an article written by Kenneth Musante and Aaron Smith published on CNN.com (see the above link), Americans have traveled nearly 41 billion less miles in 2008 than at the same point in 2007.

Assuming the average vehicle gets about 20 miles per gallon, Americans have used over two billion less gallons of gasoline so far this year.

Additionally, the reduction in miles and corresponding decrease in gasoline consumption doesn’t take into account the fact that many Americans are still driving the same amount, but have traded in less fuel efficient vehiclese such as trucks and SUVs for cars with better fuel economy such as compact cars and hybrids.

Hopefully even if gas prices continue to fall, we’ll continue to be mindful of the amount of miles we drive and continue to move towards more fuel efficient vehicles.

Gas Prices Fall Back Below $4

For the first time since June 6, the national average price for a gallon of regular unleaded gasoline has fallen below the $4 mark.

According to GasBuddy.com, the national average price for gasoline has slipped to $3.99 per gallon. While this is certainly good news for many drivers – the price of gas has been on a slow and steady decline since hitting its record high of $4.12 on July 14 – there probably isn’t much solace to be taken. After all, gas prices are still up nearly 35% since last year.

Currently, the state with the lowest average price is Missouri at $3.73 per gallon, while Alaska is reporting the highest prices at a whopping $4.81 per gallon. There are 16 states reporting an average gas price above $4 per gallon.

The recent drop in gas prices – and the price of oil for that matter – can be mainly attributed to a single factor: as the price of gasoline has increased, our demand has started to decrease. After years of wondering what the American consumer’s breaking point is regarding increased fuel costs, I think it’s safe to say we’ve found it.

Since oil hit its record high of $147.00 per barrel on July 11, prices have fallen roughly 15%, due in large part to demand destruction. Over the past several weeks, government reports have shown that Americans are driving less) (i.e. using less fuel) and the economy is continuing to weaken – which will likely reduce both current and future demand as well.

Considering most of the oil imported to the U.S. goes towards the production of transportation fuels, it’s no wonder the decrease in demand for transportation fuels has caused such a dramatic turn around in the price of crude oil. People have been driving less, walking or riding a bike more and have started switching out their gas guzzlers for vehicles with better fuel economy.

While this temporary relief is certainly good news for many, I don’t expect the good times to get much better, or last much longer.

Ultimately, it seems like we’re going to be stuck in this price range for both gasoline and oil. As oil and gasoline prices rise, demand falls which in turn brings down the price. As oil and gasoline prices decrease, demand starts to climb again, which in turn causes the price to go back up.

So, enjoy your sub-$4 gas while it lasts.

People Somewhat Optimistic About The Possibility of $100 Oil

The last time the price of crude oil closed below $100 a barrel was back on March 3, 2008. As of this past Friday – four months since the final sub-$100 close – the price of crude oil closed at a record high of $145.29 per barrel.

Increasing global demand and stagnating (at best) supplies coupled with a weak dollar have been the major contributing factors to oil’s astronomical climb over the last several years. And to make matters worse, in both the short term and long term, it doesn’t appear as if things will get significantly better for either supply and demand or the dollar. This has led many prognosticators to warn the biggest price shocks may be yet to come.

Despite all of the gloom and doom regarding oil and gasoline prices, there are still plenty of people out there who believe oil prices will soon pop and within the next 12 months, we will see prices drop back to the $60 to $80 range.

So, to get a gauge of where Daily Fuel Economy Tip readers fall in this spectrum, I recently had a poll up on the site which very simply asked: “Do you believe oil will ever drop below $100 per barrel again?” Here’s how responses came back:

  • 41% believe oil will fall below $100 again
  • 59% believe oil will never fall below $100 again

While these numbers are clearly in favor of those who believe sub-$100 oil is a thing of the past, I found it kind of staggering that over 40% of respondents think $100 oil will have at least one last hurrah.

(Full disclosure – I don’t think oil will ever close below $120 again, let alone $100.)

For me, the most convincing argument for oil pricing holding at current levels and/or climbing even higher centers around the two most recent asset bubbles – the tech stock bubble of the late 1990s/early 2000s and the currently unwinding housing bubble. Let me try to explain:

In both the tech and housing bubbles, asset prices obviously ended up much higher than the asset’s underlying value. Whether it was the thought of future earnings, or a product of creative financing/overpriced appraisals, the prices for both tech stocks and homes became completely out of whack with historical levels. At some point, things were bound to correct.

Now, there are plenty of people who are arguing the same thing about oil prices – there hasn’t been a dramatic shift in supply/demand and the falling value of the dollar has artificially propped up. While this may be true, there’s another, much more significant factor that needs to be taken into account:

OIL IS A FINITE SUBSTANCE. WE CAN’T CREATE ANY MORE AND EVERY DROP WE USE REDUCES THE AMOUNT WE HAVE LEFT.

The reason stated above is what I believe has caused the dramatic spike in oil prices. We’ve simply come to realize that we are quickly closing upon peak oil and there is a premium to be paid for that. This problem is never going to go away and will only get worse the further along we move into the future.

This is why I’m on the side of the 59% of readers who believe the days of sub-$100 oil are gone forever.

Gas Officially Hits $4 A Gallon

The day that we’ve all dreaded, yet have come to accept, is finally here – this afternoon, the national average price for a gallon of regular unleaded gasoline crossed the $4 mark for the first time.

Upon hitting the $4 mark, gasoline is now 27% more expensive than it was a year ago; 34% higher that it was at the beginning of the year; and 11% higher than it was just one month ago.

There are now 13 states and Washington, D.C. reporting gas prices in excess of $4 a gallon. Currently Alaska is reporting the highest prices at nearly $4.45 a gallon, while South Carolina is bringing up the rear at $3.75 a gallon.

It now appears that most Americans have finally reached their breaking point with gas costs. Despite our complaints at both $2 and $3 a gallon, most American drivers didn’t really change their habits or their vehicles in order to deal with rising fuel costs.

However, now that we’re well past $3 gas and will probably see prices stay above $4, it’s clear that most American drivers are finally now being forced to change their driving and purchasing habits. Here are the two prime examples:

First: the Federal Highway Administration recently released data showing Americans drove 11 billion fewer miles this past March when compared to the data for March of a year ago. While that amounts to only a 4.3% drop, it’s still the first such drop in recent memory.

Second: The Ford F-150 has finally been knocked from its perch as America’s best selling vehicle – a title it had held since 1992. The vehicles that moved ahead of the truck? The Honda Civic, the Toyota Corolla, the Toyota Camry, and the Honda Accord. Sensing a theme here?

So, in the end, $4 gas may not be such a bad thing, especially if it forces us to worry about fuel economy and conserve the gasoline we have left.

$5 Gas – A Reality For Alaska

Today was quite a day for oil and gasoline prices. And from the looks of it, the worst may just be beginning.

A barrel of crude oil climbed a record $10.75 to close the trading session at a record high of $138.54. Are you beginning to sense a trend with the records?

Today’s jump was caused by two main factors: 1) the dollar falling sharply against most major currencies, specifically the Euro; and 2) the release of a forecast by a Morgan Stanley analyst which predicts crude oil will be trading at $150 a barrel by July 4.

This of course helped to push gasoline prices ever closer to the $4 mark. According to GasBuddy.com, the national average price of a gallon of regular unleaded gasoline is now up to $3.99. At this point, it appears the average American motorist will be paying over $4 a gallon come Monday morning’s commute.

Thirteen states and Washington, D.C. are now reporting average prices above $4 per gallon. Missouri currently has the lowest state-wide average price at nearly $3.75 per gallon.

And for the final kick in the pants? Today, America had its first state reporting a state-wide average price of over $5 a gallon.

As of late this afternoon, GasBuddy.com was showing the average price of gasoline in Alaska as $5.09 per gallon. While the price has since dropped to a more “reasonable” $4.83, it’s still pretty telling that enough people were reporting prices in excess of $5 that the average price ended up that high in the first place.

But, if you think this is bad, just wait until the International Energy Agency, a widely respected and independent source of energy information, releases a forecast showing global demand has outstripped global supplies. If (when?) that happens, today’s price increase will look pretty tiny.

Gas Prices Inching Closer to $4

The price of a gallon of regular unleaded gasoline climbed above $3.97 today, and continued its relatively rapid climb towards the $4 mark. Before this year, the national average price for a gallon of gas had never climbed above $3.25.

Currently, Wyoming is reporting the lowest state-wide average price at just over $3.76 per gallon, while Alaska is reporting the highest state-wide average price at a whopping $4.37 per gallon. As of this afternoon, 13 states plus Washington, D.C., are reporting average gas prices above $4 per gallon.

Gas prices were kept in check today by the falling price of crude oil, which has shed nearly 7% since hitting its all-time high of $135.09 per barrel.

Over the past month, the national average price for a gallon of gas has jumped nearly 10%, and is up over 33% since the beginning of the year. At the same time last year, we were paying roughly $3.15 for a gasoline, which equates to a 26% year over year price increase.

This past week, the price of gasoline climbed only four cents per gallon, which was certainly welcome news for most of America’s motorists. While it’s unlikely that gas prices have finished their meteoric rise, hopefully this past week’s slowdown is an indication that we’re nearing this summer’s peak price.

That being said, all bets are off if we were to have a major supply disruption. In fact, some experts are predicting that we may even see $6 gas this summer should the hurricane season be as strong and destructive as the 2005 season which produced hurricanes Katrina and Rita.

Obviously, all of us hope that this isn’t the case, but it’s looking like this summer might end up being a situation where we hope for the best, plan for the worst and get something a little in between.

Another Day, Another Record For Gas Prices

At some point, gasoline prices will stop rising. Right?

For the 16th consecutive day, the national average price for a gallon of regular unleaded gasoline has closed at a higher price than the previous day.

The national average gas price is now up to $3.88 per gallon, which is roughly 10% higher than a month ago, 20% higher than exactly one year ago, and 26% higher than the national average price on January 1, 2008. And we still haven’t started the summer travel season!

Currently, there are nine states reporting average gas prices in excess of $4 per gallon, with Alaska leading the way at $4.27 per gallon. Wyoming has the nation’s lowest state-wide average price at $3.63 per gallon.

Not to be outdone, the price of a barrel of crude oil touched another record high today in crossing the $135 mark for the first time before finishing the day at $130.81, down slightly from yesterday’s closing price. Since May 1, the price of crude oil has risen nearly 20%, and is up over 30% since the beginning of the year. However, according to many prominent analysts and economists, this may just be the beginning of a prolonged bull market for oil.

One such analyst is Goldman Sachs’ Arjun Murti, who recently reaffirmed his belief that oil will hit $200 a barrel during the next six to 24 months. Considering Murti was one of the first analysts to predict $100 oil – and we’re already nearly two-thirds of the way to $200 – I think it’s safe to say that, unfortunately, Murti’s probably going to be correct.

So, what would a spike in oil prices mean for gas prices? If you go based on an article posted on CNN Money, we could be looking at the very real possibility of $6 gas. The article’s prime example of something that would cause a spike in oil and gas prices was an active/destructive hurricane season. Essentially, the margin between supply and demand is so tight right now that any prolonged disruption in supply – say, a category five hurricane damaging refineries throughout the southeast – would cause gas prices to hit $5 or $6 per gallon, at minimum.

Long story short, it’s probably going to get a lot worse from here on out.

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