The slide in gas and diesel fuel has slowed down and has actualy started to climb back up recent days amid indicators that the national average could jump to $2 a gallon or higher this spring.
A shift in the psychology in the fuel market seems to be under way. Fuel prices are up more than 40 percent since they bottomed out just below $33 a barrel on Dec. 19. The reversal, after months of declines, suggests that production cuts by the OPEC cartel may be having an effect, along with growing tensions in the Middle East and the sentiment by traders that drops in prices went too far.
The 11-day Israeli air and ground offensive, which has killed about 600 people, has probably added about $10 to the price of oil, said Mark Pervan, senior commodity strategist with ANZ Bank in Melbourne.
“The recent gains have been due to a one-off issue in the Middle East,” Pervan said. “Once that calms down, the market could be in for a correction back toward $40.”
Oil prices are up about 25 percent in the last week alone, in part because of the escalating conflict between Israel and Hamas in Gaza. Rising oil prices have helped push the wholesale price of gasoline up by 40 percent since Dec. 24, leading to predictions by energy experts that retail gasoline prices will spike by as much as 25 percent in coming weeks.
“A lot of people are talking about dollar-a-gallon gasoline, when the wholesale market seems to be pointing to $2 a gallon,” said Tom Kloza, chief oil analyst at the Oil Price Information Service. As of Monday, regular gasoline was selling for $1.67 a gallon, on average, up from a recent low of $1.62 on Dec. 30.
The decline in gasoline prices has offered badly needed relief to consumers. A driver buying 50 gallons of gasoline a month has been saving $2 a day compared to a year ago, and $4 a day compared to the price peak in July. For the national economy as a whole, the savings came to around $1 billion a day, according to the Oil Price Information Service.
Analysts say the decline in gasoline use may have bottomed out, barring a further big downturn in the economy.”There will be a real spike in gasoline prices coming in the next four to six weeks,” predicted Chris Ruppel, an energy analyst at Execution, a brokerage and research firm. “We are witnessing a sea change in energy market sentiment as Americans appear to be returning to some of their old driving habits just as geopolitical risk is once again a factor in crude prices.”
Oil prices jumped more than 5 percent on Monday alone to close at $48.81 in New York trading, as fighting continued in the Gaza Strip and Iran’s OPEC representative said the cartel would hold a special meeting in February. The cartel decided last month to cut output by 2.2 million barrels, on top of earlier cutbacks.
The AAA auto club reported that the average price for a gallon of unleaded gasoline on Monday was $1.67, up nearly a penny and a half from the day before. That still compares favorably to the national average of $3.10 a gallon a year ago and the record high national average price of $4.11 last July 17.
In contrast to gasoline, diesel prices have not yet bottomed out. A gallon cost $2.40 on Monday, down a fraction of a penny from the day before.
“In comparison with between roughly a 40 percent drop in the stock market and a 20 percent drop in home values, the drop in gasoline prices is just a drop in the bucket,” said Adam J. Robinson, director of commodities at Armored Wolf L.L.C., a hedge fund.
Mr. Robinson said he was unconvinced that oil and gasoline prices would go back up for long. “I think it is too soon to call a bottom in oil or gasoline because demand is falling faster than OPEC is cutting,” he said.
“Consistent negative economic data over the coming weeks from the U.S. and elsewhere will likely be enough to water down this positive mood in the market right now,” said Pervan, who expects oil to average about $40 a barrel this year.
With several different sides weighing in, its difficult to know where fuel is really going to go. Only time will tell.
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