Cheap Gasoline Is Here To Stay, Crude Oil Trajectory Continues South

Cheap Gasoline Is Here To Stay, Crude Oil Trajectory Continues South

$UGA, $USO

Retail gasoline prices fell to the lowest level in more than 3 months in the Lundberg Survey as Crude Oil fell for a 6th week running.

US drivers paid an average $2.7108 gal for regular Gasoline at pumps across the nation in the 2 wks ended 7 August, according to Lundberg Survey Inc.

Prices fell 0.1077 a gal in the survey, which is based on information obtained at about 2,500 filling stations by the Camarillo, CA-based company.

US Gasoline cost about 0.81 gal less than a year ago.

In the next survey period, “it’s very likely we will see a decline of similar magnitude,” Ms. Lundberg said Sunday in a telephone interview.

The highest price for Gasoline in the lower 48 states among the markets surveyed was in Los Angeles, at $3.80 gal. The lowest was in Charleston, SD, where customers paid an average of $2.19 a gal. Regular gasoline averaged $2.78 a gal on Long Island, New York State.

A year ago, WTI Crude Oil (NYSEArca:USO) prices dove from over 100 to the low 40’s and headed lower, and there are emerging signs that cheap Crude Oil is here to stay.

For drivers across the US that is great news because it means Gasoline prices are falling too.

Again, Gasoline (NYSEArca:UGA) as low as $2.19 gal can be found in South Carolina, and if the price of Crude Oil continues to fall, expect it to break the $2.00 psych support again.

Below are 3 Key reasons that Gasoline prices will not spike anytime soon, as follows:

1. On 14 July the 5P+1 UN power nations agreed to lift sanctions on Iran in return for limitations on the country’s nuclear program. For energy markets, and consumer wallets that is a huge deal.

Iran holds the 4th-largest Crude Oil reserves in the world, and in the late 1970’s it produced as much as 6-M BPD. Since then, sanctions and underinvestment have hobbled the country’s energy sector, and in Y 2014 it produced just 2.8-M BPD, but expect that amount rise quickly. As recently as Y 2011, Iran’s production was 3.7-M BPD; lifting the Western sanctions will increase Crude Oil production significantly once again, flooding the market with more Crude Oil.

A few hundred thousand additional barrels of Crude Oil will have a big impact on prices, so if Iran adds 1-M bbls or more of Crude Oil to the market over as it plans to, now that sanctions are being lifted expect to see supply pressure on Oil prices for a long time to come.

2. Another supply challenge to watch is shale drilling in the US. Despite the deep dive in Oil prices, US drillers have been stubborn about cutting production. In fact, US Oil production is up nearly 1-M BPD or 11% since this time a year ago.

From a supply standpoint, that is putting more pressure on Crude Oil prices than Iran or OPEC’s resistance to cutting supply. And with the number of rigs drilling for Oil in the US up a bit the Summer, expect an oversupply of Crude Oil for many years to come.

3. The 3 biggest things that kept Oil prices high over the past 10 yrs were increasing demand and periodic supply disruptions. So, on the demand side, China alone is responsible for about 50% of the increase in global Oil demand over the past 10 yrs, so China’s consumption is an important factor.

If China’s growth falters or more fuel-efficient vehicles become more popular in Asia and India, there will be a dramatic impact on prices.

The above 3 factors is a formula for cheap Gasoline for a very long time. Given the trajectory Crude Oil is on, $2.00 gal at the pump is not out of reach before the Summer ends, as demand slows nationally in the Fall and Winter frames.

For now, know that the cost energy from petroleum will remain low for the foreseeable future.

Have a terrific week.

HeffX-LTN

Paul Ebeling

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