Tags: david | frazier | us | economy | gasoline | price | crude

Gasoline Price Unlikely to Hit $5 a Gallon

Tuesday, 08 Mar 2011 12:30 PM

Since the political protests in North Africa spread to Libya during the third week of February, numerous financial-market pundits have written articles discussing the possibility of U.S. gasoline prices rising to $5.00 or higher.

Although I agree that, under certain circumstances, retail gasoline prices could rise to $5.00 or higher, several factors indicate that the probability of that happening is low.

For example, a substantial amount of evidence suggests that the exchange-value of the U.S. dollar will trend higher during the months ahead. That’s very significant, because crude oil prices and the value of the dollar tend to move in opposite directions; see the chart below.

Blog continues below chart. Click to enlarge.

DFchart3-(1).JPG

Secondly, the prices of crude oil and retail gasoline are largely determined by the available supply of oil relative to the demand for oil – when the supply of oil rises above the demand for oil, the price of oil tends to decline, and vice versa. That’s very significant in regard to the likely direction of gasoline prices during the months ahead because the worldwide supply of crude oil rose above the worldwide demand for crude oil during January, the latest months for which data is currently available.

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While there’s a chance that the supply of oil could fall below the demand for oil in the event that the problems in Libya were to escalate, oil ministers from Saudi Arabia and other OPEC nations have pledged to replace any potential supply of crude oil that might be lost due to the situation in Libya.

Meanwhile, oil refiners tend to increase their inventories of crude oil and gasoline during the spring months of every year in preparation for the summer driving season. As a result of those increases in the inventories of oil and gasoline, the ratio of the supply of oil to the demand for oil tends to rise, and the retail prices for gasoline therefore tends to decline; see the chart below.

 Blog continues below chart. Click to enlarge.

DFchart2-(1).JPG


Although the national average retail price of gasoline in the United States rose sharply during February as oil refiners increased their prices for gasoline in anticipation of a short-term decline in the available supply of crude oil due to the situation in Libya, the factors mentioned above suggests that retail gasoline prices will turn lower within the next few weeks.

As you can see from the chart above, that’s exactly what happened during the third quarter of 2008 after the supply of oil relative to the demand for oil rose above the national average retail price of gasoline during September 2008.

Note from Moneynews:

If you’d like to learn more about Mr. Frazier's analysis of the financial markets and how to focus on economic statistics that tend to indicate the future direction of the economy and stocks, try a free sample of his investment-advisory service, The ETF Strategist. Click Here to Find Out More.

About the Author: David Frazier
David Frazier is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He also writes two very successful investment newsletters. Discover more by Clicking Here Now.
 

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DavidFrazier
Since the political protests in North Africa spread to Libya during the third week of February, numerous financial-market pundits have written articles discussing the possibility of U.S. gasoline prices rising to $5.00 or higher. Although I agree that, under certain...
david,frazier,us,economy,gasoline,price,crude
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2011-30-08
Tuesday, 08 Mar 2011 12:30 PM
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