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By Samuel R. Avro on Dec 8, 2008 with no responses

$1 Gas Prices on the Horizon?


Had someone asked you back in July “what are the possibilities that we’d be paying $1 for a gallon of gas in the near future?” you would have marked them as crazed. At the time, gas was topping out at roughly $5 a gallon in NYC.

Not so fast now, times have changed.

While the recent quick slide in crude oil, the main component of gasoline, still has a way to go in order for gas at the pump to reach the $1 level, it’s definitely a possibility.

While it's not likely that we'll be paying $1 per gallon, analysts say that nothing should be ruled out.

While it isn't likely that we'll be paying $1 per gallon, analysts say that nothing can be ruled out in this market.

“If there are markets that legitimately flirt with $1 gallon retail gasoline, they will undoubtedly be in the Rust Belt where the annual lows regularly occur” says Tom Kloza, Chief Oil Analyst at the Oil Price Information Service. However, he added that “we would have to see wholesale prices in the 60′s – we do have wholesale prices in the 80′s right now.”

The “Rust Belt” -an area that encompasses portions of the Mid-Atlantic, Northeastern and upper Midwestern states- generally is on the lower end of the national gas price range.

“The last time that monthly average motor gasoline (regular grade) prices in the USA were less than $1 per gallon was March 1999. During that time crude oil (WTI) averaged about $13 per barrel from January-March 1999″ says Neil Gamson of the Energy Information Administration.

Last week, crude oil prices had their largest drop since the Gulf War in 1991. The release on Friday of bleak employment data helped cap out the week, sending crude prices to below $41 a barrel. Oil closed at a level not seen since December 2004, and is off more than $100 per barrel from its high reached in July of this year.

The national price for regular unleaded gasoline has dipped well below $1.80 according to the American Automobile Association.

Mr. Kloza added, that he does not believe “that the $25 bbl crude quotes (which would give way to retail gasoline under $1.00 gal) are likely, but acknowledge that everything is in the realm of possibility.”

Merrill Lynch, in a report released last week, said that they forecast a dismal first half of ’09 for the crude market, and that it’s possible that it can dip as low as $25 barrel. “A temporary drop below $25 is possible if the global recession extends to China and significant non-OPEC production cuts are required,” the report stated.

Crude oil and gas have come a long way from their July highs; crude was over $147 a barrel while gas was over $4.11 per gallon. Enormous price swings don’t happen all too often, especially the fact that it has taken all of 5 months for the immense drop.

But consumers must know that this is only temporary. It’s a direct result of the fear of the economic downturn getting worse. And while it may be a relief when visiting the pump, being that it’s a bad economy that’s ultimately the price driver overall it will still mean less money in the average American’s pocket.

“In any case, the dominant point is that these price declines are not being driven by technological change, a new ‘normal’, or conservation – they are being driven by panic liquidation and a temporary visit to prices that make no particular sense in terms of production costs” continued Mr. Kloza. “If nothing is done from a policy standpoint to emphasize behaviors that cut consumption, we’ll be back in the high priced energy boat sooner rather than later.”