Gas Prices Will Fizzle Out by October

We have had some dog days here in Terry, Montana this summer and the price of gasoline has been scorching upward right along with the heat. The spot market for gasoline and diesel prices dropped like a rock Monday, but Tuesday morning brought new hope and both of them are both back up. Gasoline is heading the pack but the price of crude oil is back down some more to $68.05 down $1.91 a barrel for the day.

For a further explanation on why gasoline prices are going up while we are still suffering from a recession we look toward the stalwart of all banking institutions, Bank of America (BAC), and its subsidiary Merrill Lynch.

In a report to investors Francisco Blanch, head of commodities research at Merrill Lynch, said that investors are flocking back into commodities after substantial withdrawals in the second part of last year, on the back of rising prices and a recovery in risk appetite.

"Our estimates put the total amount of money currently invested in commodity indices at about $125 billion, up from a trough of $80 billion dollars in February," he said.

But it does not explain that people filling up their tanks are paying more and driving less due to a slacking economy. The unemployment rate has almost doubled from 5 % in April 2008 to 9.7 % in July 2009 per today's U.S. Bureau of Labor Statistics.

Crude prices have been driven higher since the first of this year by a combination of OPEC capacity cuts and continued strong demand from Asia, particularly China and India. China’s oil demand in July increased 3.5% over the same period last year as imports continue to rise. This has pushed the price of crude up even though consumption is down around the world. But the winter months will exacerbate this already clouded picture with crude oil expected to steep downward from the current $70 to $40 a barrel.

Crude oil and gasoline prices will be scorchers for just another month and like comets fizzle out over the horizon with a trail of rocks tailing behind. Fall will bring welcome relief to the exhausted gasoline consumers. The other good news they will be enjoying is lower heating oil and natural gas prices. Diesel prices will move down with crude oil prices and red dye diesel will be down to $1.50 per gallon in time for a cold winter predicted for most of the country. There seems to be no floor on the price of natural gas, which is now at around $2.50 per million cubic feet versus $16.25 just a year ago.

Disclosure: The writer does not any investment in commodities or equities.

Comments

[John Bowman:]

I hope you're right. $40 oil would be a blessing.

Sep 02 07:44 AM

[Bob van der...:]

John Bowman:

You can track my articles and quotes in various US and Canadian newspapers by Googling my name. I correctly called the petroleum market crude oil and fuel price adjustment in August 2008 for the fall and winter of 2008. Since then I have also called the upward movement this year.

In March 2001 I picked up early on the petroleum industry switching to pricing their raw material and finished products with the spot market. This was right after the CFTC had removed the volume limits on trading for international commodity investors.

I am still active after almost 50 years in the refining and marketing end of the petroleum industr and currently analyze fuel pricing for various clients who depend on me short term forecasts to purchase their supplies.

Sep 02 08:18 AM

[Soceir:]

I don't understand why oil prices will fall in the winter?

Thanks.

Sep 02 11:39 AM

[User 480937:]

I don't understand why oil prices will fall in winter?

Sep 02 11:40 AM

[The Greates...:]

They will fall because no one is buying it at the price at the pump, also people with out jobs do not drive, they use no gas. Desiel is a by product in the producting of gas and should never had been allowed to get as costly as it has.

Sep 02 10:54 PM

[Bob van der...:]

I am spending Labor day working (now there is a concept) on my article to explain why gasoline prices will dip back down in the fall of this year. It will be posted and submitted to Seeking Alpha as soon as it has been completed.

Sep 05 07:43 AM