After falling another penny and a half today to $1.683 per gallon (the record 84th straight day of falling prices), some analysts believe gasoline may be approaching a bottom. They cite the latest weekly survey by Mastercard that suggests gas demand over the past week reached the same level as this week last year for the first time in several months. If they are right, ~$1.60-$1.65 may be as low as gas prices are headed.
But today’s EIA oil inventory report tells a different story. They say gasoline demand was 3.6% below last year’s level, keeping gasoline inventories at healthy levels. Supplies of distillates (like diesel) and propane all stayed at ample levels thanks to huge drops in demand of 15.4% and 21.8%, respectively. With this demand reduction, it seems the bottom in oil and gasoline prices will be largely determined by two forces out of our control: OPEC cuts and cold weather. OPEC is discussing a dramatic cut in production next week that may be larger than the 1.5 million barrel per day decrease last month. In fact, Saudi Arabia is already announcing lower shipments for refiners in Asia — a contributing factor to the 4% increase in oil’s price today. And the weather is getting colder, but we’ll see how much of the ample inventories that ends up erasing.
The natural gas inventory report comes out tomorrow and may shed some light on whether natural gas prices have hit their bottom ~$5.50 per million Btu. Stay tuned for that information.
Bottom line: Low oil prices are bolstered by another EIA report of collapsed demand and healthy inventories. If OPEC has a dramatic cut in production, weather turns colder, and Mastercard is right that gasoline demand is returning to year-ago levels then the bottom for prices may be very soon. But more terrible economic news could also keep the bears in control — like further news similar to the recent report Japan’s recession has gotten deeper than expected last quarter.
aaand so they did cut production and prices are going back up. This is so depressing for my husband and I to once again be playing the “how high will it go?” game…. any ideas? We both have a long commute and when prices were in excess of $4 it consumed 30% of our budget we could barely feed ourselves!!