Saturday, April 01, 2006

 

$3 Per Gallon Gas By This Summer?

A look at oil prices. "Oil prices appear headed back toward $70 US a barrel, a level not seen since hurricane Katrina battered the Gulf of Mexico coast and sporadic shortages sent gasoline at the pump above $3 a gallon U.S.-wide. Analysts warn, however, that consumers and businesses could be just one major supply disruption away from more serious financial consequences."

"Sherry Cooper, chief economist at BMO Nesbitt Burns, said the ramifications of $70 oil and $3-a-gallon gasoline would be 'more mild' the second time around 'because we're getting kind of used to it.' But while the gas-price sticker shock may be wearing off, Nomura Securities chief economist David Resler fears a more subtle fuel-related angst settling in among consumers."

"'There is the pessimistic notion that this is not going to go away and that's going to have a more lasting impact on driving habits and behaviour, I suspect, than we've seen so far,' Resler said."

"Perhaps the top threat for the oil market is the standoff between the United Nations and Iran, OPEC's No. 2 producer, over Tehran's nuclear energy ambitions. Iran's foreign minister said Friday his country would not use oil as an economic weapon, and that helped ease prices, but analysts say they remain concerned about supplies from Iraq, Russia, Venezuela and other places. Unrest in Nigeria has taken more than 500,000 barrels per day of oil off the market, and more than 300,000 barrels per day of Gulf of Mexico output remains shut-in because of damage from last fall's hurricanes."

"Yet in spite of all the apprehension about oil supplies - or maybe because of it - U.S. inventories of crude are at a seven-year high of roughly 341 million barrels. That does not include the 685,700 barrels in the country's strategic reserve, available in an emergency. Some analysts point to this buildup of inventories as evidence the market is divorced from reality. IFR Energy Services' Tim Evans sees a 'dangerous complacency about the downside potential for prices,' but many more say it is a reflection of unease about geopolitical uncertainties."

"The potential exists for $3-a-gallon gasoline at some point this summer, analysts say, but that assumes out-of-the-ordinary disruptions to refining or distribution, or both. The Energy Department, meanwhile, is forecasting an average summertime price of $2.50."

Comments:
Local prices here in northern Arizona were right at $2.50 today. This state is so spread out, $3 gas would put a big dent in the economy.
 
There is the pessimistic notion that this is not going to go away...

... the market is divorced from reality.

...dangerous complacency about the downside potential for prices...

It's amazing how many highly placed people are in denial. Anyone that pumps gas knows the long-term trend is unmistakably upward.

Unleaded in SoCal's already averaging 2.75, meaning $3.00 is only a month or so away. Unlike last year, I don't expect a "correction", given we won't have friendly foreigners shipping us their strategic reserves.
 
I have no doubt we'll hit $3.00 or more. Of course most people will blame it on "Big Oil". The Washington circus will demand hearings and investigations. Some jackass will reccomend price controls etc... I for one would like to see State and Fed taxes removed from gasoline, but of course that won't happen. So get used to $3,$4 gas. Inflation is eating us alive slowly, and who do you blame that on?
 
Exactly, WMBZ. Everyone seems to ignore the simple fact that the eroding dollar will drive the price up regardless of other factors.
 
I agree, average Joes have no idea how much value the US$ has lost in the past few years.
 
Northern California is similar to Southern California's price. I usually see a 15-20 cents hike in midtown San Francisco, so they could be $3 by tomorrow. I know the price was an average of $2.72 in my county.

I think I made the mistake of selling Suncor stock too soon. Now I want back in...
 
currency trends usually follow the bull or bear market in stocks, correct?
 
Generally yes. Doesn't that validate that we are in fact in a secular bear? ;)
 
posilutely!
 
Ben,
I'm not shocked when I see the CHF dollar trading at 1.30. When I lived there 15 years ago it was around 1.40. When it went to 1.8 I remember thinking that's odd. And I wouldn't change passports for anything.
I grew up in the Midwest and these days I'm bullish and long on certain energy and food stocks and a little gold on the side. I wish had invested in a panoply of precious metals years ago, especially the industrially important ones, because as a chemist I saw their lasting value then but failed to act.
 
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