Crude oil prices have fallen rather sharply since late February, down almost 25%. This is likely the result of oil production being up, demand being a little softer than expected, and crude oil inventories reaching a new all-time high (but only 3% above their year ago levels). In other words, crude production responded to the high prices we saw earlier this year by increasing, and demand responded by weakening. Consumers are now breathing a little easier as prices decline to a new clearing level.
Gasoline is still pretty expensive, but the good news is that it's going to get cheaper, as suggested by the second chart above. This chart compares the price of wholesale gasoline futures (white line) with retail gasoline prices at the pump (orange line). Note how retail prices lag futures prices, which is what you'd expect. With the recent declines in futures prices, we can expect gasoline prices at the pump to fall to $3.30/gal. or less in coming weeks; that would represent a decline of at least 15% from the early April highs, and possibly more before all the dust settles. It was just a few months ago that the market fretted over the possibility that rising gasoline prices would amount to a significant headwind to growth, but now that risk is fading.
Meanwhile, the huge decline in natural gas prices in recent years is acting as a big stimulus for the economy, transforming entire industries as they switch from more expensive energy sources to very cheap natural gas.
I'd expect that we'd have a new business sector booming: conversion of gasoline vehicles to burn natural gas.
ReplyDeleteNatural gas is cheaper and cleaner-burning. This is a no-brainer.
Well, except for the EPA... It's illegal to tamper with vehicles.
July Gasoline futures has dropped 15 cents in the last 2 days...
ReplyDeleteThe boss made a fabulous call on retail gasoline prices..I am glad he does not take bets!
ReplyDeleteUGA, is now off 20% from it's recent high...
Notice the when goo does decline the nexus departs, as suffering retailers attempt to grow their gross margins.
Hear, in the Twin Cities, we have only experienced a two bits decline in retail pricing, despite a $30 pb reduction in WTCI..
I do not mind, since this is Obamaville, Barrockasota and they shall reap their just rewards...
I must confess, I thought $4.50 per gallon was in the bag...
ReplyDeleteThe President, can now take credit for driving down goo prices, which will make it cheaper for the unemployed to look for work...
I can hear their campaign theme now; we drove down the price of crude and soon we will do the same for the unemployed, all we need is just another four years to get the job done.
@cabodog I think it will take some time before we can fully engage to the usage of natural gas. Yes it is a lot cheaper but cars and other machines that works with the use of oil and gas needs some modifications before we can use natural gas to make them work.
ReplyDeleteCentral Asia Economy