Tuesday, September 12, 2006

JSB games the commodity market

Mark my words: Gas will drop to 2 dollars a gallon by the middle of October, as the price of light sweet crude falls to 57 dollars a barrel.

I know, today the Drudge Report screamed
GAS PRICES FALL TO 2.05 IN IOWA! But I mean 2 bucks in the less-Iowa regions of the country where gas is currently around 2.75 a gallon and people are less likely to whine about having nothing to do on a Friday night.

There are three reasons for this drop off:

1. There is election in November. If the price of gas isn't (secretly) the biggest issue in the election it is close to it. The House of Saud still holds considerable sway over OPEC. And the House of Saud and W. are buddies. Don't call it a conspiracy, but you can call it quid pro quo -- the kind where you get to
hold hands.

2. Energy consuming behemoth America survived a hot summer without any energy supply problem to speak of, despite a partial closing of the Alaska pipeline in August. Not many would have predicted that coming in.

3. The recent
mega-find in the Gulf of Mexico -- projected to increase US oil reserves by 50 percent -- won't hit the market for years, but it underlines the theory that the earth is far from running out of oil. And, as long as the price per barrel doesn't dip back to 15 dollars, some enterprising mega-cooperation will be there to find and harvest the black gold and turn it into a quick trip to the mall.

If anyone thinks I would make such a bold predication without putting my money where my mouth is, I will now squash that affront forever:

On Friday I needed gas. The price was at $ 2.83 a gallon -- down almost 50 cents since last time I gassed up.

Instead of letting out a yelp of joy and filling up, I calmly pumped 2 gallons. This will last me about two weeks. By then I expect gas to be at about $ 2.40.

If I fill my tank at $2.40 I will have saved about five bucks. But I won't. I will wait another 2 weeks. The price of gas will dip to 2 dollars.

Then I will fill my tank with a total savings of close to ten dollars.

So it's pretty clear; either you're with me or you will pay the consequences. With real money.

*Jeez, oil just dropped another 1.85 today. I didn't even see that. Maybe not such a bold prediction anymore.


Alex said...

: )

Gone to the blogs said...

I agree that there are lots of untapped reserves out there, but keep in mind that the marginal cost of extraction keeps getting higher and higher as many of these finds are in difficult geological locales.

The demand side of the oil industry is virtually a given - it will continue to grow alongside global GDP. The supply side, however, ain't as easy as it used to be. Not only is there the whole geopolitical morass, but there's also the issue of remaining reserves becoming ever more difficult to extract. Over time, the resulting upward pressure on marginal producer costs will be reflected in crude prices. But over the next few months, I don't totally disagree that prices could soften further.

JT said...

I was talking short-term. I have no idea what the oil prices are going to be at in a few years. I just read, short term OPEC wants to try to keep it from dipping below 60 but the US wants to see it closer to 50. I also noticed, in Matt Drugde's Iowa watch, gas is at 1.95.