Do You think Oil/Gas Price will drop to $3 a gallon, all over US?
- Overt optimism?
- Wishful thinking?
Barely a few short months ago, this level of optimism would have been laughable, an ostrich like withdrawal from reality.
Reality: Some places around the U.S., notably in the states of South Carolina and Virginia, are already seeing gas at less than $3 a gallon toward the end of June 2012, although the reported national average still stands at $3.47 a gallon, with both coasts still havens for high gas prices, with California averaging $3.90 a gallon and New York $3.67.
After the summer driving season ends, $3 a gallon gas becomes an even stronger possibility, unless military tensions erupt in regions that can affect global oil prices. However, any possible conflict should already have factored into world oil prices by now, as potential dangers of oil disruption have been known for some time. Iran saber rattling continues, but other countries that were in major conflict, such as Iraq and Lybia, are coming back on line and contributing to global oil supplies.
According to Chief Oil Analyst Tom Kloza of Oil Price Information Service, the futures market is implying that wholesale gas prices would come in at $2.25 by October, add to that a retail premium of 70 cents, and we are looking at a gallon of gas priced at $2.95.
What is Demand and Supply Ratio of Oil/Gas?
From the supply side, the world is already oversupplied, with oil production at 91.1 Million barrels per day, an all time high, and demand in May at 89.9 Million barrels a day, as estimated by the International Energy Administration, with OPEC contributing 31.5 Million barrels a day in May 2012. The overhang of oil supplies was also partly caused by a rapid North America boost in production, led by North Dakota and Texas, which helped the U.S. oil supply increase by 14% from a year ago.
The demand side furthermore still seems to be on a softening trend, as the manufacturing sectors in major oil consuming countries still are on a stagnating mood. Of course, high gas prices also means less driving by the public.
If $3 a gallon gas is possible by the fall season, this will serve as a huge boost to the U.S. economy. Pundits would have you believe, that low gas prices may not necessarily be desirable, as this would point to more fundamental problems in the global economy, which happens to be a reasonable assumption.
Nonetheless, the U.S. Department of Energy has estimated that U.S. gas use for 2011 was 142 Billion gallons. A $1 drop in gas prices simply means that the U.S. economy will receive a $142 Billion windfall, without any government stimulus or other contributing economic factor.