Experts speculate gas may drop below $1 a gallon

15 12 2008

A worker lowers the price of regular unleaded gasoline in Independence, Mo. in November
How low can the price of gas fall? With drivers paying the cheapest price to fill their tanks in nearly four years, it is a question many consumers are pondering, with some experts speculating it is possible prices could even drop below $1 per gallon.
Prices already have decreased to below $1.25 per gallon in some parts of the Midwest. With the economy in a freefall, analysts do not rule out crude oil, which traded Friday in the mid-$40 range, sinking to $20 per barrel, a price that could translate to gas at $1 per gallon.

“Right now, you look at the way demand is retreating, it tends to predict lower prices,” said John Kingston, global director of oil for Platt’s, a provider of energy information. “A drop to $20 per barrel is not out of the question.”

In New Jersey, the price of unleaded regular fell to $1.60 Friday, the lowest it has been since March 2004, said Tom Kloza, chief oil analyst for Oil Price Information Services in Wall Township. In July, the state recorded its highest ever average price for unleaded at $3.99.

“I’m not in the camp where we’ll see prices fall to $1 per gallon or less,” said Kloza, who thinks crude could dip below $40 per barrel, but if so, only briefly. “Here, (in New Jersey), we will see some numbers below $1.50 per gallon.”

Typically, retail gas prices bottom out between mid-December and mid-February, when the cold weather tends to curb demand, Kloza said, so prices should remain below $2 for at least that long. With the economy in a tailspin, that should keep prices depressed, he said.

In its short-term energy outlook released Tuesday, the Energy Information Administration projects the annual average retail gas price will be about $2.03 per gallon in 2009, saying the current economic slowdown is likely to be more severe and longer than it had originally projected. That should reduce global energy demand and lead to additional declines and crude oil, which it says should average $51 per barrel next year.

Getting to $1 per gallon, however, does not look probable, said Tancred Lidderdale, an analyst at the agency. The last time gas was selling in that range was back in 1998, when crude oil was selling at $14.44 per barrel, he said.

“That, to me, seems pretty tough,” he said.

The energy agency also projects lower heating costs for consumers using home heating oil this year, because of reduced demand. Home heating oil prices are now projected to average $2.53 per gallon, a drop of 78 cents from last year’s prices.

Some customers, however, will not benefit because they locked in prices earlier this fall ,when the cost of home heating oil was run ning more than $4 per gallon.

“It’s going to be a mess,” Kloza predicted. “You will see a tremen dous diversity between cash-on-delivery prices and the locked-in contracts. It will really impact next winter, when you will see fewer people lock in prices.”

New Jersey, however, has fewer people who purchase heating oil through fixed price contracts than the rest of the Northeast, said Eric DeGesero, executive director of the New Jersey Fuel Merchants. Instead, more consumers choose to sign contracts with a cap, preventing them from paying a set amount, which allows them to pay less should prices fall, he said.

“Prices are down and most people seem to be happy with that,” DeGesero said.

One factor in the lower demand is that the structure of forward prices in the oil markets is encouraging people to build inventories, Kingston said. A fair amount of demand is now going into inventory, which can be sold later at higher prices and profit, he said.

“Even with a turnaround in demand, a lot of that inventory will have to be worked off,” Kingston said, which should slow any rise in energy prices. “Any significant increase will be tempered by this in ventory overhang.”

Given those factors, Kingston does not see consumers paying more than they are now paying at the pump for another four to six months, keeping gas prices under $2 per gallon for at least that long.

Long term is another issue.

“Gas price relief is welcome, but it is also temporary,” said Dan Weiss, a senior fellow at the Center for American Progress. “Once our and the world’s economy recover, demand will increase and prices will go up. The era of cheap gas is over.”

On his blog, Kloza noted the benefits of lower gas prices available to consumers ought to be taken in context. Even with reduced demand, Americans consume about 378 million gallons of gasoline each day.

That translates to monthly expenditures of about $20.5 billion, well below the $36.4 billion Americans spent last December, Kloza noted. But it still exceeds the $17 billion Americans spent on gasoline in December 2003.

“We are paying more than $900 million less each day than we were in December 2007, but we are paying more than we were five years ago,” he wrote. NJ.com/Ap/Pcjn

Advertisements

Actions

Information

One response

24 12 2008
how many gallons is a barrel of crude oil | Digg hot tags

[…] Vote Experts speculate gas may drop below $1 a gallon […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s




%d bloggers like this: