$1 a gallon is next barrier for gasoline, some predict
Pump prices headed toward five-year lows nationally and in California, the Energy Department said Monday. And despite a bump in crude prices, some analysts say the slide might not end until oil hits $25 a barrel and gasoline drops to $1 a gallon or below.
The hope for some good news from President-elect Barack Obama’s economic stimulus package and production-cut hints from the Organization of the Petroleum Exporting Countries were enough to keep crude above $40 for at least another day, analysts said.
Crude oil for January delivery climbed $2.90 to $43.71 a barrel Monday on the New York Mercantile Exchange. But some experts didn’t see much momentum behind the increase because of expectations of a bleak jobs picture for January and weaker demand for oil.
“The world has changed. I don’t see any reason why $1 gasoline isn’t possible, and $25-a-barrel oil is not out of the question,” said Phil Flynn, vice president and senior market analyst for the Alaron Trading Corp. in Chicago. “I don’t think the downside is over. There is a lot of surplus oil out there.”
But Fadel Gheit, senior energy analyst for Oppenheimer and Co., is one of the analysts saying that oil won’t stay down, even if the historic price drop isn’t quite over yet.
“Some of the same clowns who were predicting $200-a-barrel oil a few months ago are in the crowd predicting $25 a barrel. But just as we believed that oil above $100 was not sustainable by market fundamentals, oil below $30 isn’t sustainable either,” Gheit said.
“Even in the midst of this global recession, the world is still using 80 million barrels of oil a day. If production is cut back sharply and the oil companies keep reining in capital spending, it will come back to haunt us,” Gheit added, saying that the global economy would eventually improve and place greater demands on supplies.
Oil’s relative weakness -- down from highs above $145 a barrel in July -- continued to drive the price of a gallon of gasoline down at an astounding rate.
Nationally, the average price of self-serve regular gasoline fell 11.2 cents to $1.699 a gallon. That was $1.30 below the year-earlier price and was the lowest average since the $1.688 the Energy Department recorded on Feb. 23, 2004.
In California, the average fell to $1.805, down 15 cents during the past week. It was $1.52 lower than at this time last year and was the lowest recorded since the average stood at $1.753 on Feb. 2, 2004.
The sound of those additional coins in his pocket was music to the ears of motorist Bruce Coddington, 58, an electrical power plant operator from the logging country of McKinleyville, Calif., which is about 70 miles south of Crescent City.
Coddington had paid as much as $4.99 a gallon for diesel for his 2000 Ford truck and nearly as much for the premium gasoline required by his 350-horsepower 2004 Corvette.
“It used to cost me $100 just to fill up the truck. It hurt a lot of people up here who drive trucks and who work in the lumber industry,” Coddington said.
Told that some analysts were speculating on gasoline dropping under $1 a gallon nationally and just slightly higher in California, Coddington didn’t need time to think about what his reaction would be.
“I would be ecstatic,” said Coddington, who last filled up his Corvette on $2.20-a-gallon premium gas at the local Costco on Friday.
“Gas that cheap would be great for the economy, and it will help bring a lot of other prices for the things we have to buy down too,” he said.
Tom Kloza, chief oil analyst for the Oil Price Information Service in New Jersey, said that more relief was probably on the way. Kloza noted that California wholesale gasoline prices were running at about 99.5 cents a gallon Monday.
Kloza wasn’t among those who saw gasoline dropping below $1 a gallon, but he said more price relief was on the way. Kloza predicted that the U.S. average would drop to about $1.50 a gallon, with California coming in slightly higher before stabilizing.