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Page added on September 3, 2012
Robert Rapier: 4 Reasons Why Gas Prices Are About to Fall Rapidly
While U.S. gasoline prices have been on the rise for the past two months — and are presently $0.15/gallon higher than they were a year ago — I expect that gasoline prices will start to fall rapidly in the weeks ahead. There are four reasons for this.
- First is that the spike from Hurricane Isaac will be short-lived as damage to oil and gas infrastructure seems to be limited. Facilities will be back online relatively quickly.
- Second is that summer driving season is at an end, and demand for gasoline will now decline.
- Third, the transition to winter gasoline (explained in depth in Refining 101: Winter Gasoline and Why Summer Gasoline Means Higher Prices) begins on September 15th. This will both lower the cost and increase the supplies of gasoline.
- Finally, the recent run-up in oil prices appears to be already priced into the cost of gasoline.
All of these factors point to the strong probability that gasoline prices will fall regardless of any government action between now and the election. Of course there are always factors that could trump these. More hurricanes that keep capacity offline, an outbreak of conflict with Iran, and the terrible accident at Venezuela’s 645,000 barrel-per-day Amuay refining complex are all factors that would work to increase prices. But taking everything into account, the safe bet seems to be that gasoline prices will fall just as they normally do in the fall.
This does not even take into account the likelihood that the Obama Administration will release more oil from the Strategic Petroleum Reserve. This will be the topic of my next column.
R-Squared Energy Blog by Robert Rapier
6 Comments on "Robert Rapier: 4 Reasons Why Gas Prices Are About to Fall Rapidly"
Bill on Mon, 3rd Sep 2012 11:09 pm
I disagree. I saw no spike from the hurricane or the summer driving season . I see a direct correlation between the price of oil and the price of gas.
As of 1900 EST the price
Bill on Mon, 3rd Sep 2012 11:19 pm
I disagree. I did not notice gas price increases due to hurricanes or the summer driving season. I do see a direct correlation between oil prices and gas prices.
As of 7 PM on Sept 3, brent crude is trading at $115.78 per barrel up $1.21 since Friday
Mike on Tue, 4th Sep 2012 12:09 am
I dunno. He’s making a short-term prediction and is not risking any hard numbers. He has a good chance of being right.
However, some people might be inclined to misinterpret this “prediction” as meaning prices will be “low” soon. There is zero chance of that. They will remain historically elevated.
Inflation adjusted and ignoring the embargo period and the Gulf War, the historical price of oil hovered for decades around $20-30 and then later $20-40 as volatility became more marked.
http://inflationdata.com/Inflation/images/charts/Oil/Inflation_Adj_Oil_Prices_Chart.htm
If we were to judge when Peak Oil occurred based on inflation adjusted price, we might conclude that 2003/2004 was a decisive $40 breakout for which there has been no return. Since 2005 price has held doggedly above $55 (but with an average above $70). A the baseline appears to be rising.
Short term fluctuations are inevitable. But the big picture is one of a new “normal” price level greater than $70.
Ken Nohe on Tue, 4th Sep 2012 2:18 am
Insignificant market analysis. It might well be right for what it says; almost nothing except that price might fall in autumn… as they usually do unless something happens in which case they won’t fall. Any guy in a caravan with a 20 $ crystal ball could tell us that much.
Tensions in the market are real and year after year the extra production potential shrinks whatever Saudi Arabia may say + all oil is not fungible. So yes we may see 80 $/barrel in October but just as likely, we may get 120 $/ barrel in November. If you are not a trader, the exact number does not matter. What matters is the trend and it is far more likely up than down.
DMyers on Tue, 4th Sep 2012 3:30 am
If anyone releases oil from the SOR to manipulate prices, that is insane.
The price is what it is, and it’s going up.
BillT on Tue, 4th Sep 2012 2:24 pm
Does it matter? Cheap oil means we are in a depression and no one can afford it. High priced oil is the new norm. In a few years, we will look back at $4 gas and think it was cheap.