Saturday, October 3, 2009

How High Will Prices Go?


With crude oil prices in the $90 range, the average motorist is wondering how high gasoline prices will go. Crude oil spot prices were $94.16/B (West Texas Intermediate at Cushing, OK on 10/31/07) and average retail gasoline prices were $2.872/gallon (10/29/07).

The forecast and actual gasoline prices were equal on 9/5/07. Since that time, crude prices have risen $18.42/B while gasoline prices have been around $2.85-$2.87/gallon. Refiners have not yet passed these costs to consumers, but it that may change just in time for Thanksgiving travel. The pass through might amount to 44 ¢/gallon.

A regression model developed by Petrostrategies, Inc. suggests that gasoline prices should be $3.41/gallon based on the prevailing oil prices. So why the 54 ¢/gallon price difference?

The growth of gasoline inventories since early September may have cooled refiner’s enthusiasm for price increases. Keeping prices low during November elections might also have been on industry executives mind.

What’s your take on this market situation and when do you expect prices to exceed $3/gallon nationally?

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