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gcarter
09-16-2006, 06:52 AM
Gasoline prices could nose-dive, analyst predicts
Tensions that drove costs recede; oil inventories high


By KEVIN G. HALL
BEE WASHINGTON BUREAU


Last Updated: September 15, 2006, 05:39:27 AM PDT


WASHINGTON — The recent sharp drop in the global price of crude oil could mark the start of a massive sell-off that returns gasoline prices to lows not seen since the late 1990s — perhaps as low as 1999's $1.15 a gallon.
"All the hurricane flags are flying" in oil markets, said Philip K. Verleger, a noted energy consultant who was a lone voice several years ago in warning that oil prices would soar. Now, he says they appear to be poised for a dramatic plunge.

Crude oil prices have fallen about $14, or roughly 17 percent, from their July 14 peak of $78.40. Contracts for October delivery of oil fell 75 cents in Thursday trading to settle at $63.22. Oil prices are expected to keep falling, just as natural gas prices have over the past year, in the weeks and months ahead.

Here's why.

For most of the past two years, oil prices have risen because the world's oil producers have struggled to keep pace with growing demand, particularly from China and India. Spare oil production capacity grew so tight that market players feared that any disruption to oil production could create shortages.

Fear of disruption focused on fighting in Nigeria, escalating tensions over Iran's nuclear program, violence between Israel and Lebanon that might spread to oil-producing neighbors, and the prospect that hurricanes might topple oil facilities in the Gulf of Mexico.

Oil traders bet that such worrisome developments would drive up the future price of oil. Oil is traded in contracts for future delivery, and companies that take physical delivery of oil are just a small part of total trading. Financial players, such as large pension and commodities funds, are the big traders and they're seeking profits.

They've sunk $105 billion or more into oil futures in recent years, according to Verleger. Their bets that oil prices would rise in the future bid up the price of oil.

That, in turn, led users of oil to create stockpiles as cushions against supply disruptions and even higher future prices. Now inventories of oil are approaching 1990 levels.

But many of the conditions that drove investors to bid up oil prices are ebbing. Tensions over Israel, Lebanon and Nigeria are easing. The hurricane season has presented no threat so far to the Gulf of Mexico. The U.S. peak summer driving season is over, so gasoline demand is falling.

With fear of supply disruptions ebbing, oil prices began sliding.

With oil inventories high, refiners that turn oil into gasoline are expected to cut production. As refiners cut production, oil companies increasingly risk getting stuck with excess oil supplies. There's anecdotal evidence of oil companies chartering tankers to store excess oil.

Warm winter would help

All this is turning financial markets increasingly bearish on oil.

"If we continue to build inventories, and if we have a warm winter like we had last winter, you could see a large fall in the price of oil," said Gary Pokoik, who manages Hedge Ventures Energy in Los Angeles, an energy hedge fund. "I think there is still a lot of risk in the market."

As it stands now, the recent oil-price slump has brought the national average for a gallon of unleaded gasoline down to $2.59 a gallon, according to AAA.

Should oil traders fear that this downward price spiral will get worse and run for the exits by selling off their futures contracts, said Verleger, it's not unthinkable that oil prices could return to $15 or less a barrel, at least temporarily. That could mean gasoline prices as low as $1.15 per gallon.

Carl C
09-16-2006, 07:38 AM
$2.29 here yesterday, George. To bad my boat's broke.

gpapich
09-16-2006, 03:20 PM
Yeah...I believe that:bonk:

We've seen a steady trend upward. There's too much profit left on the table once the consumer's been conditioned to high prices. I think you'll have to see some big changes, more change-enabling technology at competitive pricing to force competition in the market and drive prices down.

Just my $.02.

Don't get me wrong though...I still love the sound of internal combustion. Merlin V1650, Allison V-1710, Chevy SBC, BBC, BMW straight six, Built-up Ford Powerstroke, etc.:tongue:

Ed Donnelly
09-16-2006, 03:34 PM
George; Gas was as high as $1.14 a litre in July.in Toronto.
Just bought gas this morning 84.9............30 cents a litre cheaper
In U.S.A. language, that is a drop of $1.20 a gallon.......Ed

Tony
09-17-2006, 10:07 PM
I'll go back up shortly after the elections.


:beer:

need for speed
09-18-2006, 12:57 PM
That woudl be SO cool!:yes: 2.80 here still! :confused: diesel is 2.78 :confused: come on DOWN!

gcarter
09-18-2006, 02:36 PM
That woudl be SO cool!:yes: 2.80 here still! :confused: diesel is 2.78 :confused: come on DOWN!
It's getting down into the 2.25 range. Going lower.

gcarter
09-18-2006, 02:42 PM
I'll go back up shortly after the elections.
:beer:
I saw another iteration of this same release. Its conjecture was into next Spring if we have a warm winter. Maybe even next Summer.
C'mon Tony, this isn't political.
If you think back to the late '90's, we saw the same thing happen.....
I remember paying $0.79/ per gallon. When prices go up, ultimately, so does production, ending in over production, falling prices, etc.

Cuda
09-18-2006, 04:57 PM
I told Debbie about two months ago I expected gas to be between 2 and 2.25 by Christmas. Looks like it will be even sooner. You gotta remember, all the talk in the mid east, they cannot eat oil. They must sell it. There isn't much of a market for sand.

Cuda
09-18-2006, 06:15 PM
I hope all those godamn speculators who drove the prices up are losing their collective asses now.

Formula Jr
09-19-2006, 05:09 AM
I looked up all the little bits and pieces of this "story."

I'm laughting at you guys that bought this. I'm not laughing with you. I'm laughing AT you, and then again, with you, as suffering the same fate. The quoted source has never said he knew anything 6 months out. :) Wow! Gas at only $2.30 by next month..........

http://www.cfr.org/publication/10602/verleger.html

LKSD
09-19-2006, 08:01 AM
That woudl be SO cool!:yes: 2.80 here still! :confused: diesel is 2.78 :confused: come on DOWN!

Yes it would be cool... Last week my diesel was 3.29 a gal !!! WTF the gas was 2.29??? J

faverod
09-19-2006, 02:28 PM
However with Ethanol added gas does burn nearly as efficiently so you end up consuming 30-50% more.

FUELPOWERED
09-20-2006, 09:51 PM
My boat sat pretty much dead on the lift all summer. I sure was not going to pay 3.39/gal for 93 octane on the street. Now, it's 2.35. I'm going to drive the **** out of her.