$4 Gasoline – Coming Soon, to a Pump Near You

I’ve been saying for years, now, that $4/gallon gasoline is an inevitability in the United States. Between the fragility of global oil production, the popularity of gas-guzzlers and the fondness of legislators of tacking on all sorts of gas taxes, it is bound to happen. Well, it looks like it’s happening a few months earlier than I expected. Gasoline futures prices jumped to $2.65, today, which translates into just about $4, when all local and federal taxes (not to mention a little profit for the station owner) are tacked on at the pump. These are futures, so we’re not looking at these prices immediately, but certainly in the near future.

If you’ve spent much time on this site, you may be familiar with the Elliott Wave Theory, which basically states that prices in equities and commodities markets (among others) are driven by psychology, not the “news,” or outside events. In this case, supply is obviously a real consideration, as the already delicate balancing act that is the petroleum industry has been jarred by seriously reduced refining capabilities in the wake of Hurricane Katrina. Side note: I am, of course, deeply saddened by the impact of Katrina in terms of loss of life and the financial impact on the Gulf coast. The costs of this storm will be with us for many years, in both social and economic terms.

Note that President Bush’s opening of the Strategic Petroleum Reserves is an empty political gesture, capable only of calming the public, if that. The oil in question is crude oil, which must be refined before it can be used. Since the impact of the storm was on refining capacity more than production, the impact of the SPR releases will be negligible, if not actually negative (since the one thing it will definitely do is reduce the SPR’s size, at least temporarily).

My advice: fill your car’s tank every time you can – the next time you pass the station, the prices will probably be higher. Also, the chairman of BP Capital is predicting serious gas shortages; he ought to know. If you have some money to throw around, buying gasoline futures (not oil futures) is not a bad idea, short term. If you have a ton of money to throw around, buy an oil refinery or import business. Personally, I think we’re looking at $6.50-7.50 pump prices, sometime in the next 2-3 years, before prices drop back down for a while.

UPDATE: Gas futures actually reached $2.90 on the New York Mercantile Exchange, according to Reuters. The same article explains that, on average, pump prices run about $0.65/gallon higher than the futures, and that the impact should be felt at the pump within about 3 weeks. That’s $3.55, folks. It’s coming.

DISCLAIMER: nothing on this site should be construed as recommending specific investments or a financial course of action. All statements represent the opinion of the author only. Seek professional advice before making any investment decisions, and risk only money you can afford to lose.





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