How Low Can Gasoline Prices Go?

The pendulum has swung quite far for gasoline prices over the last few months.

It now looks like this popular sign for $4.00+ a gallon gas is equally applicable to current prices that, in some parts of the country, appear to be headed toward $1.00 a gallon.

Seeing the leading number "1" at gas stations in recent weeks (yes, even out here in California) has been strange enough and has led to a noticeable increase in the number of Hummers out on the road.

But, some are now predicting a more unusual leading number - zero.

Gasoline below one dollar a gallon?

According to this report in the LA Times, it could be here before you know it.

Pump prices headed toward five-year lows nationally and in California, the Energy Department said Monday. And despite a bump in crude prices, some analysts say the slide might not end until oil hits $25 a barrel and gasoline drops to $1 a gallon or below.
...

"The world has changed. I don't see any reason why $1 gasoline isn't possible, and $25-a-barrel oil is not out of the question," said Phil Flynn, vice president and senior market analyst for the Alaron Trading Corp. in Chicago. "I don't think the downside is over. There is a lot of surplus oil out there."

But Fadel Gheit, senior energy analyst for Oppenheimer and Co., is one of the analysts saying that oil won't stay down, even if the historic price drop isn't quite over yet.

"Some of the same clowns who were predicting $200-a-barrel oil a few months ago are in the crowd predicting $25 a barrel. But just as we believed that oil above $100 was not sustainable by market fundamentals, oil below $30 isn't sustainable either," Gheit said.

I wonder if Phil Flynn realizes that Fadel Gheit may have just called him a "clown".

The national average retail price is about $1.70 a gallon at the moment, about 10 cents higher in California. Maybe I ought to dust off that SUV Fill Up Index that was last updated when gasoline was $4.50 a gallon last summer.

• Source Blog

Comments

[jepittman:]

I do not pretend to know how cheap gasoline will get but I do know that the relief I see and hear from consumers is significant. At $4.00 a gallon plus far too many people were angry at being literally denied the use of their automobiles. There is still a lot of economic uncertainty but the public's relief over gasoline prices should not be underestimated.

2008 Dec 09 04:22 PM

[Chris B:]

I rode DTO (double-short oil) from $140/bl to $100/bl over the summer for a 40+% gain, eventually getting out because I put in a stop that was too close and I hate gambling (DOH! Stupid! There went a 100% gain.).

If oil was to hit $25, I'd be in oil stocks such as RIG, COP, and SLB up to my neck. After all, last time I checked China is still expanding, supplies are still finite, and money supply is expanding wildly in all developed economies. As it is, I wouldn't be surprised to see a $35 bottom, but even at that level, I can't justify gambling when there are so many equity bargains out there.

2008 Dec 09 04:51 PM

[patio:]

Yeah, and all it took was the collapse of the world's economies. But hey, cheap gas is cheap gas,say what?


On Dec 09 04:22 PM jepittman wrote:

> I do not pretend to know how cheap gasoline will get but I do know
> that the relief I see and hear from consumers is significant. At
> $4.00 a gallon plus far too many people were angry at being literally
> denied the use of their automobiles. There is still a lot of economic
> uncertainty but the public's relief over gasoline prices should not
> be underestimated.

2008 Dec 09 04:52 PM

[Perki:]

Probably the fastest boost to consumer spending comes from gas price reductions. US sales of gasoline are about 9 ml bbls per day. Every dollar of gas price reduction puts $11.3 billion dollars per month in disposable income directly and instantly in the hands of the consumers --tax free!

So a $3 per gallon reduction in gasoline pump prices is a $34 bln monthly increase in disposable income. Doesn't sound like much but the billions spent on brokerage firm and bank rescues have resulted in almost NO EFFECT on disposable funds at the consumer level.

2008 Dec 09 05:28 PM

[joe1:]

well said all. where is GS everyday predicting 200/b ? Its all about the trade boys and girls. Thats how wallstreet makes money. Convince you it was demand on the way up and of course a lack there of on the way down. Its BS.. no way has demand fluctuated like the price this year. One idea i have floated around in a way to prevent yourselves from getting screwed by wall street again. ....I like the poster above did the DTO thing on 7/11. nice ride. One thing ive done the opposite of DTO is loading up on DXO. little by little. That if wall street decides its time to jam it up mainstreet's giggy again. im covered! Its an insurance policy i may never use. so be it. Ideas welcome!

2008 Dec 09 05:45 PM

[jepittman:]

It remains to be seen what the 'collapse of the world's economies' turns out to be in fact. There is no question that there has been a global wholesale liquidation of risk assets that includes oil and virtually all other commodities. Many of these were previously bid to absurd levels and are having their corrections, some overshooting historical valuation parameters. The average citizen is largely disconnected from these swings in prices except through food and fuel. Food inflation is still with us but fuel is the shining star of relief from the recent out-of-control economic roller coaster joe sixpac has been having to endure and if he is finally getting a decent break on one thing that impacts his everyday life, I don't think he knows or cares what's happening in the 'global economy'. He's just glad he can drive his truck again without fearing the $125 fillup. And that's nothing but good news for the 'collapsing global economy'.


On Dec 09 04:52 PM patio wrote:

> Yeah, and all it took was the collapse of the world's economies.
> But hey, cheap gas is cheap gas,say what?

2008 Dec 09 08:28 PM

[Todd L:]

What I don't get is, despite a weakening global economy, how "demand destruction" could be so severe as to chop the price of a gallon of fuel down by over 75%... I mean, we still basically pay the same price for brake pads and tires as we did a year ago, don't we? Sure, we might carpool a bit more, or take the train more often...

I guess all this does is prove to me that speculation in the commodities market had blown the price of oil WAY out of proportion over the last few years.

Are offshore oil rigs still able to sell the oil they drill for at a profit when oil is $30 per barrell?

2008 Dec 09 09:12 PM

[Kelly Liebe...:]

It's a game, and we can choose whether we are the pawns - or not. Joe 1 has explained it well enough. Do the exact opposite of what they are telling you to do. That is the only way you are going to make it in this market.

2008 Dec 09 10:17 PM

[icandoitdon:]

yes....speculation drove oil markets as the price rose from $60 to $140. demand had nothing to do with it. we've seen the unwinding of that trade. it is likely to overshoot, though $25 seems a bit of a stretch....too many people starting to look for it.

the silence of the oil bulls at $140 is deafening, isn't it?






On Dec 09 09:12 PM Todd L wrote:

> I guess all this does is prove to me that speculation in the commodities
> market had blown the price of oil WAY out of proportion over the
> last few years.

2008 Dec 10 12:37 AM

[TinyTim:]

Funny, no one is complaining about speculators on the way down to $1 / gallon. Nary a peep about peak oil either.

what's this: "I rode DTO (double-short oil) from $140/bl to $100/bl over the summer for a 40+% gain"

The media is more responsible for short term price swings than anyone. Speculators aka sellers are the other half of the market. Try working a market without liquidity.

2008 Dec 10 04:19 PM