Gas could get back as low as $1.15/gal

[Queasy]

Link - Because sometimes, there are better explanations than "it's an election year".

WASHINGTON ? The recent sharp drop in the global price of crude oil could mark the start of a massive sell-off that returns gasoline prices to lows not seen since the late 1990s ? perhaps as low as $1.15 a gallon.

"All the hurricane flags are flying" in oil markets, said Philip Verleger, a noted energy consultant who was a lone voice several years ago in warning that oil prices would soar. Now, he says, they appear to be poised for a dramatic plunge.

Crude-oil prices have fallen about $14, or roughly 17 percent, from their July 14 peak of $78.40. After falling seven straight days, they rose slightly Wednesday in trading on the New York Mercantile Exchange, to $63.97, partly in reaction to a government report showing fuel inventories a bit lower than expected. But the overall price drop is expected to continue, and prices could fall much more in the weeks and months ahead.

Here's why:

For most of the past two years, oil prices have risen because the world's oil producers have struggled to keep pace with growing demand, particularly from China and India. Spare oil-production capacity grew so tight that market players feared that any disruption to oil production could create shortages.

Fear of disruption focused on fighting in Nigeria, escalating tensions over Iran's nuclear program, violence between Israel and Lebanon that might spread to oil-producing neighbors, and the prospect that hurricanes might topple oil facilities in the Gulf of Mexico.

Oil traders bet that such worrisome developments would drive up the future price of oil. Oil is traded in contracts for future delivery, and companies that take physical delivery of oil are just a small part of total trading. Large pension and commodities funds are the big traders and they're seeking profits. They've sunk $105 billion or more into oil futures in recent years, according to Verleger. Their bets that oil prices would rise in the future bid up the price of oil.

That, in turn, led users of oil to create stockpiles as cushions against supply disruptions and even higher future prices. Now inventories of oil are approaching 1990 levels.

But many of the conditions that drove investors to bid up oil prices are ebbing. Tensions over Israel, Lebanon and Nigeria are easing. The hurricane season has presented no threat so far to the Gulf of Mexico. The U.S. peak summer driving season is over, so gasoline demand is falling.

With fear of supply disruptions ebbing, oil prices began sliding. With oil inventories high, refiners that turn oil into gasoline are expected to cut production. As refiners cut production, oil companies increasingly risk getting stuck with excess oil supplies. There's already anecdotal evidence of oil companies chartering tankers to store excess oil.

All this is turning financial markets increasingly bearish on oil.

"If we continue to build inventories, and if we have a warm winter like we had last winter, you could see a large fall in the price of oil," said Gary Pokoik, who manages Hedge Ventures Energy in Los Angeles, an energy hedge fund. "I think there is still a lot of risk in the market."

As it stands now, the recent oil-price slump has brought the national average for a gallon of unleaded gasoline down to $2.59, according to the AAA motor club. In the Seattle area, prices per gallon have fallen to $2.856 currently from $3.071 a month ago, a decline of 7 percent, according to AAA.

Should oil traders fear that this downward price spiral will get worse and run for the exits by selling off their futures contracts, Verleger said, it's not unthinkable that oil prices could return to $15 or less a barrel, at least temporarily. That could mean gasoline prices as low as $1.15 per gallon.

Other experts won't guess at a floor price, but they agree that a race to the bottom could break out.

"The market may test levels here that are too low to be sustained," said Clay Seigle, an analyst at Cambridge Energy Research Associates, a consultancy in Boston.

On Monday, the oil-producing cartel OPEC hinted that if prices fall precipitously, OPEC members would cut production to lift them. But that would take time.

"That takes six to nine months. If we don't have a really cold winter here [creating a demand for oil], prices will fall. Literally, you don't know where the floor is," Verleger said. "In a market like this, if things start falling ... prices could take you back to the 1999 levels. It has nothing to do with production."

 

[NissanGurl]

NM, thought the price in the OP said $2.15 not $1.15. Prices here are at $2.26 now so $2.15 was reasonable, $1.15 I don't see happening.

 

[Jawo]

Whoa...someone thinks they know how the oil market works? I thought it was something like the ForEx markets that are primarly theory!

 

[jlbenedict]

Ha! Yeah right..

As soon as prices drop, Opec will definately limit output.. They'll claim this will help "stabilize" prices.

 

[PurdueRy]

I will believe it when I see it

 

[giantpinkbunnyhead]

Bah... I'm still paying 3.05 for premium. If the prices are going to go down, they better damn well start moving!

 

[FoBoT]

that doesn't make sense, the big oil companies control the prices and raised them to gouge us at the pump

 

[Strk]

While it would be nice, I just see us continuing to get screwed, at least partially, by the ethanol mandate from the energy bill. I'm still thinking it will average above $2.00 for regular for the rest of the year. It would be nice to see it below $1.50 one day though.

The issue I see is people repeating the same stupid mistakes. How many oil crises do we have to go through before people realize our demand is screwing us over? If we were in line with other developed countries, we would see our demand drop 7-10 million barrels a day (yeah, it would take a while, but still). For reference, Japan has a bit under half our population and uses around 5.5 million barrels of oil a day, while we use roughly 20 million barrels of oil a day (other developed countries have similar ratios).

 

[Pocatello]

I'm still paying $2.87/gal for regular.

 

[lokiju]

I still remember paying 75 cents per gallon back in the 90's.

Those were the days, get more gallons of gas than dollars spent.

 

[Queasy]

Originally posted by: Strk
While it would be nice, I just see us continuing to get screwed, at least partially, by the ethanol mandate from the energy bill. I'm still thinking it will average above $2.00 for regular for the rest of the year. It would be nice to see it below $1.50 one day though.

I agree with that. The ethanol mandate and the dozens of different blends of gasoline for summer driving really screw us over. It creates artificial shortages which drives up prices.

The issue I see is people repeating the same stupid mistakes. How many oil crises do we have to go through before people realize our demand is screwing us over? If we were in line with other developed countries, we would see our demand drop 7-10 million barrels a day (yeah, it would take a while, but still). For reference, Japan has a bit under half our population and uses around 5.5 million barrels of oil a day, while we use roughly 20 million barrels of oil a day (other developed countries have similar ratios).

But we're also about 10 times the geographical size of Japan (I'm pulling that number out of my bum but you get the idea). People in Japan can get away with using public transportation because everything is so much closer. Not so in the USA.

 

[vi edit]

Originally posted by: Strk
While it would be nice, I just see us continuing to get screwed, at least partially, by the ethanol mandate from the energy bill. I'm still thinking it will average above $2.00 for regular for the rest of the year. It would be nice to see it below $1.50 one day though.

The issue I see is people repeating the same stupid mistakes. How many oil crises do we have to go through before people realize our demand is screwing us over? If we were in line with other developed countries, we would see our demand drop 7-10 million barrels a day (yeah, it would take a while, but still). For reference, Japan has a bit under half our population and uses around 5.5 million barrels of oil a day, while we use roughly 20 million barrels of oil a day (other developed countries have similar ratios).

It's hard to compare us to Japan(or many countries for that matter). The main island is narrower than many states are across and just a little bit longer. You just can not make fair consumption comparisons when you have so much of a larger area to work with.

 

[FoBoT]

Originally posted by: Strk
For reference, Japan has a bit under half our population and uses around 5.5 million barrels of oil a day, while we use roughly 20 million barrels of oil a day (other developed countries have similar ratios).

don't you think you have to take into account the size of the country?

japan is a small country compared to the US, european countries are small

 

[rgwalt]

Originally posted by: Strk
While it would be nice, I just see us continuing to get screwed, at least partially, by the ethanol mandate from the energy bill. I'm still thinking it will average above $2.00 for regular for the rest of the year. It would be nice to see it below $1.50 one day though.

The issue I see is people repeating the same stupid mistakes. How many oil crises do we have to go through before people realize our demand is screwing us over? If we were in line with other developed countries, we would see our demand drop 7-10 million barrels a day (yeah, it would take a while, but still). For reference, Japan has a bit under half our population and uses around 5.5 million barrels of oil a day, while we use roughly 20 million barrels of oil a day (other developed countries have similar ratios).

Most of Japan's population lives in its cities, many of which have advanced public transportation systems. Our population is MUCH more distributed than Japan. We have much more farm land, and we have to move goods around the country.

This being said, I think we need to work on developing better transportation systems.

Oh, the other thing that is going to help is that refineries are into their "turn around" season. Each fall refineries turn off equipment to replace broken or ailing components, clean heat exchangers, repack reactors with catalyst, etc. As a result, the refineries have even less capacity. This does not drive up the price of gas since demand is lower and there is enough capacity to meet the demand. However, the refineries don't buy as much crude during this period, which drops its price and results in lower gas prices down the line. Wahoo!

R

 

[fbrdphreak]

Personally I don't care much if the price of oil goes down. Sure it's nice, saves us money, but if you can't afford the gas you shouldn't be driving; you've got bigger problems The fact is that it is a limited resource (to our knowledge thusfar) and overall we need to strive to use less of that. High prices helps. It makes the oil companies unnecessarily rich, but it seems to be the only thing causing lazy Americans to buy gas-sucking SUV's and cart only their own fat ass everywhere. God forbid they consider the safety of other motorists, unnecessarily polluting, and general wastefulness as reasons to travel more economically.

If someone can get people to make more economical vehicle choices without making the damn greedy oil companies rich, I'm all ears. Till then, high gas prices certainly do that

 

[tfinch2]

If gas ever goes lower than $1.50/gal, I'm going on a cross-country drive while I can afford it.

 

[ArchCenturion]

Are we allowed to stockpile our own gasoline?

Like could I go dig a big hole in my backyard and put some huge tank in it and store my own cheap gasoline for the times when prices go up too high?

 

[Amused]

OPEC will never let it get that low. When gas was just under $1 a gallon in 1999, it was caused by OPEC flooding the market to drive out small producers. Oil dropped to $11 a barrel to reach that low of a price.

I highly doubt it will ever get that low again. Not unless you adjust for inflation. But even then, I doubt it will ever drop below $30 a barrel, or $1.50 a gallon.

 

[Strk]

Originally posted by: FoBoT

Originally posted by: Strk
For reference, Japan has a bit under half our population and uses around 5.5 million barrels of oil a day, while we use roughly 20 million barrels of oil a day (other developed countries have similar ratios).

don't you think you have to take into account the size of the country?

japan is a small country compared to the US, european countries are small

Sure, size matters, but to what extent? For starters, a large bulk of US residents live in close areas (especially on the coasts). While places in some spots in the Midwest are still kind of screwed (100+ miles to anywhere), you have a majority of us living in close proximity. I remember maps of the states for the 2004 election where people were trying to act all smug over all the states that were red, then you had another map that showed population density.

And it's not just about public transportation -- although we really do need to catch up -- but our transportation overall. Compared to Europe and Japan, we get very little variety. We tend to get larger displacement engines and, of course, limited amounts of diesel engines. That's only part of the problem though, since gasoline accounts for 9-10 million barrels of oil (I believe it's around there).

 

[Queasy]

Originally posted by: ArchCenturion
Are we allowed to stockpile our own gasoline?

Like could I go dig a big hole in my backyard and put some huge tank in it and store my own cheap gasoline for the times when prices go up too high?

You could but I don't think gasoline holds up very well when stored for long periods of time.

 

[EngenZerO]

paying 3.00 for premium up here in dc.

 

[rgwalt]

Originally posted by: ArchCenturion
Are we allowed to stockpile our own gasoline?

Like could I go dig a big hole in my backyard and put some huge tank in it and store my own cheap gasoline for the times when prices go up too high?

You would probably need to get some sort of permit, but it isn't illegal. You would essentially open your own gas station. Gasoline isn't the most stable stuff though, so as you let it sit it degrades. Old gas doesn't burn as well, and tends to gum up your engine from what I understand.

If you are really interested, consider starting a local gasoline co-op.

R

 

[j00fek]

i got told this by my co worker this morning, and i read the article. while it is good and MAKES US FEEL BETTER ABOUT THE SITUATION AT HAND, it wont happen anytime soon. if it does like i said to him ill buy him a red lobster dinner.

 

[GoPackGo]

I would be happy to see gas go that low, but I still want to see more fuel efficient vehicles.

 

[mobiblu]

one can only dream...