Tags: Larry | gasoline | 1.75 | oil

Frost & Sullivan's Larry: Gasoline May Fall to $1.75 a Gallon

By    |   Friday, 16 January 2015 10:42 AM

Gasoline prices have plunged to a 5 ½-year low in synch with crude oil, putting regular gasoline at an average national price of $2.08 a gallon Friday, according to AAA.

And the party isn't over, says Carl Larry, an energy consultant at market research firm Frost & Sullivan. The price could fall to $1.75, he told Daily Finance.

The price of crude oil determines the price of gasoline, and the forces pushing crude down remain in place, Larry noted. For example, the eurozone economy remains in the dumps, growing only 0.6 percent annualized in the third quarter.

Meanwhile, supply is plentiful, as U.S. production stands at its highest level in at least 31 years. U.S. crude constitutes "the best oil you can use to make gasoline," Larry argued.

But the drop in gas prices will be finite, as it spurs more demand, he explained. "At this price level, we see the consumer saying this is a great deal, and I'm going to go out and drive more."

So $1.75 probably represents the bottom, Larry predicted.

Meanwhile, Nouriel Roubini of New York University doesn't expect the oil price slide to last too long.

He believes Saudi Arabia's strategy of refraining from production cuts makes sense. "Their behavior is like a typical oligopoly using predatory pricing," Roubini said at a conference last week, Fortune reported.

"If you keep prices low for long enough, you get rid of those who are high marginal-cost producers, whether it’s shale gas and oil, or Russia, or Venezuela, you name it."

Experts say U.S. shale oil production is uneconomical below $60 to $70 a barrel.

"You . . . continue to increase capacity," Roubini said of Saudi Arabia. "That’s going to lead to everybody else to underinvest in increasing capacity."

The result?

"In the short term, you have lower oil prices, but in the medium term you’ve flushed out your competition," he noted. "You take the pain for the next 12 to 18 months, but the result is higher prices and market share down the road."

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Gasoline prices have plunged to a 5 ½-year low in synch with crude oil, putting regular gasoline at an average national price of $2.08 a gallon Friday, according to AAA.
Larry, gasoline, 1.75, oil
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2015-42-16
Friday, 16 January 2015 10:42 AM
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