Will prices at the pump actually decline?

Posted Feb 23rd 2008 6:10PM by Aaron Katsman
Filed under: Consumer Experience, China, Oil

With fuel prices reaching their highest levels since last June, many consumers are worried that by the end of the summer driving season we may actually see $4.00 a gallon. With crude oil moving over $100 a barrel, and with a market driven by speculators and not fundamentals, crude prices moving up are a self-fulfilling prophecy.

But is it possible that the opposite may happen? That prices drivers pay at the pump make actually decrease? The answer may very well be yes. Why? Inventories. The fact is that we have gas supplies that have quietly grown to their highest level in 14 years. With such a big supply, prices may drop. This isn't China, where everything is government controlled, and we have seen shortages on all kinds of consumer staples. In the U.S., the market more or less (except when lawmakers butt in and add taxes on gasoline) sets the price.

"We've got a major supply cushion," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.

With such a supply cushion it makes sense that prices will fall. I know that some of you will comment that the problem is all with greedy oil companies, but I don't think that is the case. Ten years ago no one felt sorry for them when crude oil was trading down at $10 a barrel. The price should be a function of supply and demand.

With supplies surging, the possibility exists that prices will actually fall.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer's fund has no positions in any stock mentioned as of 2/23/08.

Tags: china, crude oil, CrudeOil, gasoline, inthenews, prices at the pump, PricesAtThePump

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Reader Comments (Page 1 of 1)

2-23-2008 @ 8:01PM

John said...

What the heck are fundamentals? What fundamentals support lower prices on a commodity that is getting ever more expensive to extract?

Fundamentals my butt.

You got to drive way too cheap for the last 30 years. I hope you enjoyed it 'cause it's history now.

2-23-2008 @ 8:12PM

moonie said...

I've been saying for years if we all bought small amounts say a gallon or 2 maybe 5 gallons or just enough to get to work and back each week it would create a glut remember in a week gasonline evaporates some so if you buy more than you need for that week a gallon or so depends on where you live will evaporate add that over month or years it really adds up. BUY SMALL AMOUNTS AT A TIME CREATING A GLUT therefore lowering prices, iF MILLIONS DID THIS EACH DAY THERE WOULD BE STORGE GLUTS go for it America buy small amounts each day, it will work !!

2-24-2008 @ 10:23AM

clem591 said...

there was a time when the dollar had enough value to buy ten gallions of gas with one hours min. wage, a house cost the average annual hosehold income with one wage earner. we have some real issues that need addressing. i think the two major parties have sold their sole and are unable to repersent the people. GO RALF NADDER