Get Ready For $4/Gallon Gasoline

Hickey and Walters (Bespoke) submit: "Get ready for $4/gallon gasoline." You have probably heard some form of the prior phrase in the past couple of weeks as the summer months approach and gas prices recently topped $3/gallon. But if everyone is thinking it, will it really happen?

In the chart below, we provide the seasonal trends in the price of oil, highlighting the summer months of June, July and August. Going back to 1987, we provide average one-year price charts of oil over the past five years, ten years and our entire date range. As shown, oil has typically risen significantly over the summer months, with the average percent change over the last five years showing the largest gains of the time frames we examined.

As the price of oil has steadily risen from its January lows of $50 back up to $64, have investors been pre-empting the trends of the past in hopes of the typical summer gains? If so, those gains might not be in the cards.

click to enlarge

Comments

[hillcrestln]

You guys do great stuff. On this one, I wonder what the charts would look like if you did the last five years MINUS 2005 (Katrina, et al).

[ErnieMontague]

This is one of the really quirky and volatile commodity prices. If gas is a commodity. Crude prices only reflect on gas prices to a degree, in the US the refining capacity (or rather lack of capacity and lack of any new refineries in thirty years) pushes gas price hugely. The crack prices today (cost of cracking crude into gas and other products) are two- three times their conventional levels). What this ends up meaning is that without increased imports or drastically lower oil prices, gas is going to get more and more expensive, as yearly consumption continues to increase.

If the Saudis ( and let's face it, the Saudis are the big gorilla) decide to start dumping another million barrels a day on the market, crude price will drop, and gas with it. Whether that will occur is questionable, OPE C loves 60 dollar oil. Whether the Sauds have the capacity is also in question, water cut at Saudi wells is huge and growing, they pump enormous quantities of water out of the ground with their oil, and indication of the imminent end of the field.