I See $2 A Gallon Gasoline This Summer

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Includes: DNO, DTO, DUG, SCO, SZO, UGA
by: Brian Bobbitt

Summary

Demand is flagging without question.

Saudis have said production to remain steady.

Supply is not a problem.

I do a lot of summer driving. Usually I expect to see a spike in prices because oil companies know that when winter is over, it's time for America to hit the road, so they usually pump up the pump for our vacation time. This time, due to the facts I will share in the article, we should see the lowest prices in several years. [about six years].

If fuel falls like I think, we should see a huge cut, perhaps near one-third in price.

The DOE thinks gas should average around $2.40 a gallon, down from $3.36 in 2014.

Averages speak volumes, but they don't mention spikes and valleys which I think you'll see on the way to $2.00 or even below. I saw $1.98 on a trip last year, and that was somewhere in the South and only one or two places. I think in the Carolinas.

Tom Kloza, chief oil analyst at OPIS also agrees with me, and is where I got my 'averages' from.

He expects the fluctuation in the price to be uneven, and said it could even dip below the $2 mark within the period. He expects demand for gasoline to reach a high point in July and August.

The lower prices are a result of world oil supplies growing faster than demand because of higher production in North America and elsewhere. Another thing that has been depressing the price of crude oil is unabated production in the middle east, and statements that they will keep pumping. But, the Energy Department warned that the forecast could substantially change if oil-related sanctions against Iran are lifted as part of ongoing negotiations. That country is believed to hold at least 30 million barrels of oil in storage. If sanctions are lifted, I bet my prediction will happen sooner than later. I hope a little later because I intend to haunt the eastern USA again this summer.

The price of Brent crude, a benchmark used to price oil used by many U.S. refineries and the most important factor in gasoline prices, is forecast to fall 40 percent this year. Using the GS forecast, again it supports my claim to lower oil.

Americans are expected to use a little more fuel than normal, not a lot, but it is a demand factor this summer. However, due to lower prices, the expense per household will be lower too. Fuel price is already down about one-third from last year according to Gas Buddy, [which I use when on the road].

We Americans are not spending the savings on the gas price from what we are used to. Instead, we are saving it. Our savings rate is increasing. The economy has been limited in its growth as we opt to save rather than spend. I know I have pulled in my horns since last October and banking it for future travels or needs.

"It's odd, consumers have held back on spending even as they pocket a nice windfall from lower gasoline prices," said Scott Anderson, chief economist at the Bank of the West.

I suppose I could go on and on about global economics, but I tooted my horn on why I feel gas will dip so why pound the drum.

To take advantage of this I suggest the following:

These are the regular short the oil market ETFs:

DNO, DUG, SCO.

Now if you really want to get serious, you may go double short with leverage using: DTO OR SZO.

Be sure you understand how these work before you invest. If oil rises, then your investment would go against you.

Shorting the market is easy, no different than if you expect prices to rise. Just be sure you understand when you go for a double-short.

I am not in any of the short oil ETFs, nor do plan to. I have discussed this with my money managers, and they feel their approach is matching my risk requirements at the present time. See my stock talks to see what I am doing with my money.

Capt Brian
The Lost Navigator

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.