just a little reading on the topic
As Prices Rise, Some See $2 Gas
by Clifford Krauss
Tuesday, January 6, 2009
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The five-month slide in gasoline prices has come to an abrupt halt, with gasoline rising by several cents in recent days amid indicators that the national average could jump to $2 a gallon or higher this spring.
A broad shift in the psychology of the oil market seems to be under way. Oil prices are up more than 40 percent since they bottomed out just below $33 a barrel on Dec. 19. The reversal, after months of declines, suggests that production cuts by the OPEC cartel may be having an effect, along with growing tensions in the Middle East and the sentiment by traders that the precipitous drop in prices went too far.
For six days in a row, drivers have been paying a few more cents a gallon than they did before Christmas. The change has been almost imperceptible for drivers who remember prices soaring above $4 a gallon last summer.
But if the price of gasoline continues rising, it may become another headache for consumers worried about their jobs and the dropping value of their homes and investments.
Oil prices are up about 25 percent in the last week alone, in part because of the escalating conflict between Israel and Hamas in Gaza. Rising oil prices have helped push the wholesale price of gasoline up by 40 percent since Dec. 24, leading to predictions by energy experts that retail gasoline prices will spike by as much as 25 percent in coming weeks.
"A lot of people are talking about dollar-a-gallon gasoline, when the wholesale market seems to be pointing to $2 a gallon," said Tom Kloza, chief oil analyst at the Oil Price Information Service. As of Monday, regular gasoline was selling for $1.67 a gallon, on average, up from a recent low of $1.62 on Dec. 30.
The decline in gasoline prices has offered badly needed relief to consumers. A driver buying 50 gallons of gasoline a month has been saving $2 a day compared to a year ago, and $4 a day compared to the price peak in July. For the national economy as a whole, the savings came to around $1 billion a day, according to the Oil Price Information Service.
Among the big winners have been businesses like shipping companies with large transportation costs, commuters who drive long distances to work and consumers with moderate incomes who spend a relatively high percentage of their paychecks on fuel.
The summer's high prices prompted Americans to cut their driving, and the drastic downturn of the economy this fall led to the huge decline in oil prices. But with the Organization of the Petroleum Exporting Countries cutting production, and with refineries trimming their output of gasoline, supply and demand may be coming back into balance.
Refineries have cut the number of barrels of crude oil they processed weekly to 14.5 million during December, from 15.4 million, according to the Energy Department. The tighter supplies are putting pressure on retail prices.
Analysts say the decline in gasoline use may have bottomed out, barring a further big downturn in the economy. MasterCard's SpendingPulse data service, which measures both cash and credit card sales of gasoline, had shown volume declines as sharp as 9 percent during some weeks in the fall. But that number has narrowed considerably as prices have fallen, and one recent week even showed a slight increase in gasoline sales compared to the same week the year before.
"There will be a real spike in gasoline prices coming in the next four to six weeks," predicted Chris Ruppel, an energy analyst at Execution, a brokerage and research firm. "We are witnessing a sea change in energy market sentiment as Americans appear to be returning to some of their old driving habits just as geopolitical risk is once again a factor in crude prices."
Oil prices jumped more than 5 percent on Monday alone to close at $48.81 in New York trading, as fighting continued in the Gaza Strip and Iran's OPEC representative said the cartel would hold a special meeting in February. The cartel decided last month to cut output by 2.2 million barrels, on top of earlier cutbacks.
The AAA auto club reported that the average price for a gallon of unleaded gasoline on Monday was $1.67, up nearly a penny and a half from the day before. That still compares favorably to the national average of $3.10 a gallon a year ago and the record high national average price of $4.11 last July 17.
In contrast to gasoline, diesel prices have not yet bottomed out. A gallon cost $2.40 on Monday, down a fraction of a penny from the day before.
Mr. Kloza said he thought gasoline prices probably hit a bottom last month. He said gasoline prices in California, which frequently leads the rest of the nation in gasoline price swings, bottomed the first week of December and had been rising since.
While gasoline prices felt like a great weight to many consumers on the way up, they have not been an economic cure-all on the way down.
"In comparison with between roughly a 40 percent drop in the stock market and a 20 percent drop in home values, the drop in gasoline prices is just a drop in the bucket," said Adam J. Robinson, director of commodities at Armored Wolf L.L.C., a hedge fund.
Mr. Robinson said he was unconvinced that oil and gasoline prices would go back up for long. "I think it is too soon to call a bottom in oil or gasoline because demand is falling faster than OPEC is cutting," he said.
