Just to pass along good news on the economic front here on September 16, 2008.
Some of you know that my previous career was in the oil and gas industry for 15 years. After talking to several of my contacts in the industry, it appears gasoline will be below $3.00 a gallon by election day in November. The O&G industry is concerned that the push for green and renewable energy will continue to drive down demand. It is anticipated that the US Senate and Congress will have gains by the Democratic Party which is “bad” for big oil. If indeed the 2 houses of government see gains by the Democrats, (They don’t care who’s President; they care who runs the US legislative branch.) O&G will use futures contracts to attempt to drive oil to $60/barrel or lower.That could mean gasoline at the retail level will be $2.15/gallon by inauguration day, (Take the current price of a barrel of oil divide by 38 and you get the approximate wholesale price of gasoline. Then for Texas add 56 cents for transportation, taxes and profit.)
Todays crude price is $93 a barrel and gasoline at 2.48 a gallon (+.56) that says retail Texas gasoline should be 3.04 in about 3 weeks. Normally it takes 3 to 4 weeks for inventories to shake out so if todays crude prices hold or continue down it could take about 6 weeks for prices to work their way down. Hurricane IKE has slowed the gasoline fall because 12 refineries have not started back up after shutting down before the hurricane, but they will be back up in 2 to 3 weeks as workers move back to Houston Baytown Texas City area. That will make the election day target still viable.
This is the same tactic O&G used when I was there in 1980’s. Prices were driven down after spiking to $40 a barrel to $10 a barrel. Ronald Reagan stripped Solar and Wind power companies of their tax breaks. As a result US solar technology was sold to Japan and Windpower technology sold to Denmark. One of 3 wind turbines for US are from Denmark (we’re just buying back our own technology)
I’m not trying to address politics. I’m just sayin’ this how the O&G industry sees competition in the Energy space.
As economists say, this assumes “that all things remain equal”, in other words no climatic or geopolitical catastrophes.
It will be interesting as the above conditions mean that gas will probably drop 40 cents a gallon by October 15. One of the political parties will try to make hay on this “phenomenon”. Watch to see Republicans claim victory on getting prices from $4.00 to $3.00. It’s rally the Democrats threat of new sources of energy that’s causing this reaction.
It’ll be interesting as Big O&G is really in control at his time. If gasoline gets to $2 a gallon we’ll consider it a gift, and Big oil will drive out much energy competition and be plenty profitable.