Gas Prices Still Heading Downward

Over the past two or three months, we’ve seen wild fluctuations in the economy, stock markets, and commodity markets.  People have been spooked that austerity measures will hurt the worldwide economic recovery (which, I would argue, never really started), which, in turn, would drive down consumer spending and demand for pretty much everything.

This, of course, affected the price of both oil and gasoline, as you can see in the chart below:

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As you can see, this chart (courtesy of shows pretty wild fluctuations in the price of both oil and gasoline, with the most “violent” fluctuations occurring in the price of oil.  That being said, at least the general direction of both prices is downward.

As of this morning, oil futures were trading at $75.70, and the national average price of a gallon of regular unleaded gasoline stood at $2.72, which is down one cent from where it was last month, and exactly where it was one week ago.

Currently, only Hawaii ($3.45), Alaska ($3.38), California ($3.09), and Washington, D.C. ($3.06) are reporting average gas prices above $3 per gallon.  South Carolina currently has the lowest average price, at $2.40 per gallon.

Since we’re currently at the peak of summer driving season, it’s hard to envision a scenario where we could see gasoline prices spike higher from current levels.  That being said, a rough hurricane season or a major impact from the offshore drilling moratorium could change things and are worth keeping an eye on.

Oil Dips Below $70 Then Rallies

The price of a barrel of crude oil dropped below $70 yesterday afternoon in intra-day trading for the first time since late February thanks to continued concerns over both the European debt crisis and weaker than expected demand.

However, as the U.S. stock markets rallied to end the session in positive territory, the price of oil finished slightly over $70 per barrel.  In trading this morning, the price of oil has climbed to $71.64 per barrel.

Despite this morning’s small rally, the price of oil has fallen significantly over the last two weeks after hitting a nearly two-year high of $87.15 per barrel on May 3.

The corresponding response from gasoline prices has been relatively muted, with prices falling from $2.94 per gallon on May 5, to this morning’s price of $2.87 per gallon.  However, since we are nearing the start of the busy summer driving season, I suppose this makes sense.

Currently there are nine states reporting an average gasoline price above $3 per gallon, with Alaska reporting the highest price at $3.59 per gallon.  Oklahoma has the lowest state-wide average price at $2.65 per gallon.

The Inevitability of $3 Gas

The national average price of a gallon of regular unleaded gasoline continued to climb overnight, and now stands at $2.88 per gallon.

With the busy summer driving season rapidly approaching and more people buying into the economic recovery — I think it’s just a head fake before the second leg down — it now appears that it is only a matter of time before the price of gasoline climbs back over the psychologically important barrier of $3 per gallon.

Today’s price of $2.88 is only slightly higher than a week ago ($2.86), and not much higher than a month ago ($2.80).  However, today’s price is over 40% higher than a year ago ($2.04) when we were still wondering if the financial system and the economy were about to collapse.

While the national average price of gasoline might be below $3, that certainly doesn’t mean some parts of the country haven’t already crossed that threshold.  Nine states and Washington, D.C., have an average price above $3 per gallon, with Hawaii having the most expensive gas at $3.65 per gallon.

Conversely, there are still several states that are well below the national average, with New Jersey reporting the lowest average price at $2.66 per gallon.

If the economy continues to show signs of improvement, and inflationary pressures on energy prices continue to increase, I think it’s fair to say we’ll all be sharing in the pain of $3 gas by Memorial Day weekend.

Oil Above $80 While Price of Gasoline Remains Flat

The trading price of a barrel of oil climbed above $80 for the first time since early January based on the believe that the United States Federal Reserve will be forced to keep its key federal funds rate at record lows for an extended period of time.

The Federal Reserve will likely have to keep interest rates low in an attempt to help keep credit expenses down for consumers while helping to allow businesses to cheaply borrow money to begin bringing down the unemployment rate.

A low federal funds rate often aids in economic expansion, which in turn, puts upward pressure on the price of commodities, especially things like oil and gold, due to the increased expectation of inflation and devaluing of the dollar.  In international trading, the price of oil is valued in dollars.

Despite the nearly 15% increase in the price of oil over the past two weeks, the price of gasoline has remained relatively flat, jumping less than one percent (two cents) over the same time frame.

However, with climbing oil prices and the busy summer driving season not that far away it seems a near certainty that the price of gasoline will climb significantly higher in the weeks to come.  In fact, it’s not a stretch to assume that this summer most of us will be paying $3 or more per gallon.

Currently, only Alaska ($3.25) and Hawaii ($3.37) are reporting state-wide average prices above $3 per gallon.  Wyoming has the lowest state-wide average price of gasoline at $2.37 per gallon.

What are your thoughts on where the price of gasoline is headed?  Leave your comments below.

3 Reasons Gasoline is Going to $5 a Gallon

One of the benefits of The Great Recession has been a respite from high gas prices.  Unfortunately, I think this break will be over very soon and that record high gasoline prices are just around the corner.

Back in July of 2008, the average price for a gallon of regular unleaded gasoline hit a record high of $4.12 per gallon.  Within six months, the bottom had fallen out of the economy and the average price of gasoline had dropped to $1.60 per gallon.

Gas PricesThanks to drastic coordinated measures by the world’s central banks and governments, a total economic collapse was avoided, an economic rebound started to take hold, and gasoline prices climbed back to the $2.60 range.

While avoiding a total “end of the world as we know it” scenario was certainly something that had to be done, the money printing measures may have set us up to face much higher gasoline prices in the near-term future.

Below are the three main reasons why I believe not only will we break the record high prices set back in July 2008, but we can expect to start paying $5 or more for gasoline.

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Higher Gas Prices – The Downside of an Improving Economy

Over the past three weeks there have been several major indicators that “The Great Recession” is finally starting to ease and turn the corner.

First, the Case-Shiller index showed the first month-over-month increase in home prices, the first such increase in nearly three years.  In other housing related news, sales of existing homes climbed for the third straight month.

Then there was the better than expected preliminary reading on the second quarter GDP, which showed the economy dipped at only a 1% annual pace between April and June.  Economist had been expecting the second quarter GDP to decline at 1.5%.

Finally, this past Friday, the July job report showed the economy lost “only” 247,000 jobs and unemployment actually dipped from 9.5% to 9.4%, the first such dip in 19 months.  Again, economists were expecting things to get worse, predicting unemployment would jump to 9.6%.

This is the sort of data we need to see on a consistent basis in order to know the economy has finally turned the corner and that this recession — the longest since WWII — is finally over.

That being said, it’s not as if this economic turn around won’t come without a little bit of pain, namely higher oil and gasoline prices.

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Gas Prices Creeping Back to $2

One of the few silver linings of our currently pitch black economic cloud was the fact that the price of gas had fallen from this summer’s record highs to levels not seen in over five years.  For those of us struggling to make ends meet, the quick decline in the price of gas couldn’t have been better news.

Unfortunately, it looks like the break on gas prices may end up being short-lived.

Since the first of the year, the national average price of a gallon of regular unleaded gasoline has climbed nearly 20% — from $1.61 to $1.92 — and with the summer driving season right around the corner, it seems unavoidable that prices will climb even higher.

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Oil Demand Down .25%, Price Down 56%. That’s Odd.

Without a doubt, 2008 was a crazy year for oil and gasoline prices.  Not only did both oil and gasoline hit record high prices — $147 per barrel and $4.12 per gallon, respectively — but both also managed to fall to five year lows.

When looking at the year in total, from January 1 to December 31, the price of oil fell from roughly $100 per barrel to roughly $44 per barrel, or about 56 percent.

Obviously, it is pretty abnormal that one of the world’s most valuable natural resources would lose over half of its market value.  The only real and logical explanation behind the drop in price would be an equally dramatic decrease in world wide demand, right?

Well, in this case, wrong.

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What is the Fair Value of Oil?

For much of the past two years, we (meaning most of the world) have been complaining about high oil prices.  As the price per barrel climbed past once unthinkable milestones – $75, $100, $125 and then nearly $150 – the complaints grew louder and louder.

Now that the price of a barrel of crude oil has fallen in excess of 50% from this summer’s record high (after falling as much as 60% before this week’s slight rebound) many of the world’s oil producers – OPEC in particular – are complaining.

In fact, even after recently announcing a 1.5 million barrel per day production cut, OPEC is rumored to be considering another cut of similar size in order to defend an oil price of between $80 and $100 per barrel.

With all of this being said, I think it begs the following question: what exactly is the fair value of oil?

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Suck It, OPEC.

Apparently a lot has happened since my last post.

The stock, credit and housing markets have been in shambles; the price of oil has now fallen over 50% from its record highs set this past July; and the price of gasoline has dropped well below the psychologically important $3 mark.

As of this afternoon, the national average price of a gallon of regular unleaded gasoline stood at $2.88, which is about 30% below this summer’s peak prices.  Over the past month alone, the price of gas has fallen nearly 23%.  Additionally, the price of gasoline is now only 7% higher than what it was at this point last year.

Currently every state is reporting an average price below $4 per gallon, and there are only 13 states with average prices above $3 per gallon.  Hawaii has the highest state-wide average price at $3.77 per gallon, while Oklahoma has the lowest state-wide average price at $2.40 per gallon.

Unfortunately, this record price decline might be nearing an end.  The Organization of Petroleum Exporting Countries (OPEC) will be holding a meeting this coming Friday to discuss massive production cuts in order to protect oil prices.  It is widely speculated that OPEC will announce daily production cuts of between 1.5 million and 2 million barrels.

Given the world’s current economic state, it is very doubtful that this production cut will cause oil prices – and subsequently gasoline prices – to shoot back up towards their record highs.  However, it’s not unreasonable to expect prices to, at the very least, stay at their current levels or rise slightly.

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