I might be exaggerating just a little if I told you that I hear the lyrics to Happy (by Pharrell Williams) playing every time I put gas in my vehicle – especially over the past three months. However, as most Americans continue to pay around $2.00 per gallon for regular gasoline, most U.S. consumers are smiling when they drive away from the fueling station.
And as happy as I am to get a fill-up of 91-octane for about $25.00 at Costco, in the back of my mind I am asking these questions: Will gas prices go much lower? When will they start to rise again? And how quickly?
Using the valuable resources of GasBuddy.com, here’s how gas prices are trending across the U.S.:
One Week Ago 2.047
One Month Ago 2.295
One Year Ago 3.287
Most analyst think that we have bottomed out. If the past 48 hours are any indication of that, I am in general agreement. After witnessing a rapid decline in U.S. gas prices the past six months, my question is not will gas prices rise, but how fast? Most analysts believe that the fundamental structure of the market place for this valuable commodity doesn’t support a rapid increase. The proof will be in this organic pudding as we move into spring and then the summer driving season.
Lower prices at the pump have not been good news for U.S. shale oil operations. A decrease in gasoline usage during the worst years of the Great Recession plus more fuel efficient vehicles coupled with increasing crude oil production helped the U.S. increase its output of oil from 5.1 million barrels per day in 2010 to around 9.1 today. This allowed the U.S. to become the second-largest producer of oil and the largest exporter. [Ref 1] It is my hope that this bump in the road doesn’t threaten the work that has been done to secure our energy independence. However, at today’s price of about $45 per barrel of crude, this puts pressure on some shale oil producers, especially those that are late-comers to this playing field.
Until my next post on this topic, one can only hope for that perfect equilibrium point on the supply and demand curve that makes gasoline prices affordable for U.S. consumers and allows companies that make up the oil and gas sector to stay in business and make a profit.
Reference : The Oil Dividend: Corporate Winners and Losers, by Tiaziana Barghini, in Global Finance, January 2015