As I write, WTI oil prices are down to $75/barrel. The above graph shows the historical relationship between US average retail gasoline prices and WTI spot prices. The vertical orange line is the $75 level the market touched today. As you can see, historically this corresponded to gas prices of $2.50-$3/gallon. It might take a while to get there, but if oil prices stay in this range I would expect gas prices to fall down to those levels. That would provide some significant relief for low and moderate income consumers in the US. (Wealthy consumers are presumably about to significantly limit their spending after watching what happened to their portfolios the last couple of weeks).
5 comments:
Back up to $82.34, or $82.02 according to thestreet.com. $104.20/bbl for Brent. Feds meet and the world rejoices. No riot premium, it seems.
Nymex crude closed at $79.30...
Prices will go down anywhere between to 10-40 dollars per barrel - and global oil production with it...
I think we end up with big problems if the price of oil continues to drop.
In view of the unrest in the ME KSA has increased its social spending. I cannot locate the source data (I think it came from a TOD post) if the price drops much below $70 a bbl then the Saudi economy gets squeezed. That may provoke further unrest in the region and disrupt supplies.
$70 a bbl oil will also delay tar sands projects as this is close to the threshold price for SAGD projects.
So a low oil price results in increased near term demand but creates a future supply choke point that will drive the price higher.
Stuart, Your chart shows that the rule of thumb I have used for a while is not far off the mark:
Retail Gas Price (gal) = 1/42 X Oil Price (brl) + $1.
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