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Business, Energy, STEM

Which Direction Will Gas Prices Move After Summer 2015 Driving Season?

Capless Gas CapThere is about one month left of the 2015 Summer Driving Season and today’s average price for a gallon on regular gasoline is $2.639. This and other data provided by GasBuddy.com [Ref 1] show that prices are heading downward.

Predicting what motorist will pay for gasoline in the future is about as accurate as meteorologists making a future cast of the weather. While it is easy to capture the current cost of gasoline across the U.S., predicting where those prices may go in the next 30 days or even the end of the year is not as easy. However, given historical trends, I tend to agree with most analysts and the Energy Information Administration (EIA) that gas prices are headed downward as we approach Labor Day, and will drop even further thru the end of the year.

“EIA expects monthly average gasoline prices to decline gradually from their June level to an average of $2.49/gal during the second half of 2015.” [Ref 2] Viewing the accompanying chart, the EIA projects that gas prices will stay under $3 a gallon for 2016.

However, I want to be the skeptic and suggest that gas prices won’t fall but will rise to $5 or $6 or higher per gallon?

Are there other skeptics out there that also think that gas prices will rise? As it turns out, there are a few. John Hoffmeister, former president of Shell Oil thinks so! According to Hoffmeister, “The next round of high prices is likely to start later this year, as crude rebounds to the $80s and $90s, perhaps pushing to the $100 level by late in the year or early next.” [Ref 3]

Hoffmeister is a retired executive of a major oil company, and I would give him a rating of -10 on the Credibility Scale [Ref 4]

Hoffmeister made his forecast in January – about six months ago, and with the exception of the gas spiking problems that were seen in southern California primarily due to the unscheduled shut-down of a local refinery that has been off-line since February, his forecast has fallen flat for 2015. It is also noted that Hoffmeister attracted national attention in 2010 when he predicted that average U.S. gasoline prices would soar to $5 a gallon in 2012, thanks to rising crude oil prices [Ref 3]. His forecast fell short, as the cost of filling up flirted with $4 in 2012, but never went higher.

However, the primary element of the gas pricing equation is crude oil prices. A quick analysis of pricing data tells me that if crude oil prices are rising, then gas prices are also expected to rise.  AAA [Ref 5] reports that supply continues to outpace domestic demand, and as a result, West Texas Intermediate (WTI) crude oil fell below $50 per barrel for the first time since April this past week.

Also according to AAA, “At the close of Friday’s formal trading on the NYMEX, WTI settled down 31 cents at $48.14 per barrel. Losses continued this morning as WTI was down in early trading to below $48 per barrel. The price of oil generally accounts for more than half the cost of retail gasoline at the pump, so lower crude oil prices typically lead to lower pump prices for motorists, barring other influencing factors like refinery issues, distribution challenges or changes in demand.”

Another oil man also predicted higher crude oil prices. I am not one to say that everyone in the oil business is a skeptic, but it is understandable why they would want to see higher crude oil and gasoline prices.  In an interview with shiftplan.com, industry insider and long-time investor Henry Aldorf states, “one small hiccup on the geo-political scene could send the price right back to where it was before, if not higher.” [Ref 6] He has predicted crude oil at $100 per barrel, and that questionable character of Russia’s president Vladimir Putin and what he might do next now that he appears trapped as his economy and currency collapse is a major cause for alarm.

I’ll give Mr. Aldorf a -20 on the credibility scale. While he gets some credit for being CEO of Terra Nova Energy, he appears to be more bullish on the future than addressing near term projections. After all, he wants his stock prices to go up just like everyone else in the energy business. However, the best outlook that we have is the near-term.

Their predictions were made back around the first of the year, and this post shows how accurate their pricing forecasts have been.

Based on what I know today, I have not been convinced to change the ratings of either Hoffmeister or Aldorf – at least not for the rest of this calendar year.  Hoffmeister’s quotes appear in a credible publication, USA Today, however, Aldorf is cited by a lesser known website, shiftplan.com. If you visit the site, you’ll notice that it is loaded with ads. That in itself does not discredit Aldorf’s comments, it just makes me wonder why more media sources didn’t pick up on them?

The truth of the matter is that the oil market could get shaken up tomorrow and things could look drastically different. Who knew that Russia’s Putin would begin working to form a relationship with China, and a draft of the nuclear deal with Iran would be available mid-July. One thing that many folks may over look in the deal is that Iran is an oil producer and would very much like to be an exporter of oil to the U.S. once again.

Until my next post, happy motoring.

[Post Note: A similar copy of this post was developed for an online course, Media Literacy, during Summer 20115.]

Sources Cited:

  1. com, www.gasbuddy.com
  2. Short-term Energy Outlook, EIA, July 7, 2015, http://www.eia.gov/forecasts/steo/
  3. http://www.usatoday.com/story/money/2015/01/19/gas-oil-five-dollar-gallon/21865975/
  4. MediActive, by Dan Gilmour, copyright 2010 Dan Gillmor, ISBN 978-0-557-78942-9, http://mediactive.com/cc
  5. AAA Fuel Gauge Report, http://fuelgaugereport.aaa.com/longest-gas-price-decline-since-january/
  6. Oil Tycoon Says Price Will Rise In 2015: “Could Shoot Right Back To $100 Per Barrel”, by Mac Slavo, http://www.shtfplan.com/headline-news/oil-tycoon-says-price-will-rise-in-2015-could-shoot-right-back-to-100-per-barrel_01042015
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About Vi Brown

Vi is principal and CEO of Prophecy Consulting Group, LLC, an Arizona firm that provides business and engineering services to private and public clients. Prior to establishing her consulting practice in 2001, Vi worked with Motorola, Maricopa County Government, Pacific Gas & Electric, CH2M Hill, and Procter & Gamble. As an adjunct faculty member, Vi teaches undergraduate calculus classes and graduate level environmental courses. She is also a professional speaker.

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  1. Pingback: Crude Oil Prices Dip Below $40 A Barrel | BridgeBizSTEM - August 22, 2015

  2. Pingback: Crude Oil Prices Dip Below $40 A Barrel | Utility Discount - August 22, 2015

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