economy
3:54 pm
Thu May 26, 2011

Oil Analyst Says Gas Prices May Drop By 35 Cents This Summer

Average gas prices in the Austin-area are down by nine cents from last week. And you should expect them to drop further, according to Tom Kloza. He is the chief oil analyst at the Oil Price Information Service in Wall, New Jersey. We reached him this afternoon by telephone.

KUT News: What’s your forecast for gasoline prices over the next few weeks?

Kloza: It’s a pretty easy forecast, because even though prices have dropped, they still have some catching up to do with what’s happened in the wholesale markets. Crude oil has stabilized around $100 a barrel, but gasoline is still trading for $30 or $40 a barrel above that. Once some of these refinery issues in the Midwest and the heartland are resolved, you’ll probably see prices drift a little bit lower. You should see lower prices into June.

KUT News: How much will prices drop?

Kloza: I think if you’re dealing with Texas, you’re probably looking at prices between $3.25 and $3.50. It will be more than last year, don’t get me wrong. It will probably be about 75 cents more. But at least it won’t be that $4-plus level that a lot of folks were talking about, and what we think represented hyperbole.

KUT News: What caused the recent surge in oil and gas prices?

Kloza: It happens every year. There’s always what I call “petronoia”, where prices move up on the fear that there’s not going to be enough. That typically is an end-of-first-quarter, beginning-of-second-quarter phenomenon.

What really led to prices going up was first, a surge in the money that chased futures and options. That brought crude oil to about $115 a barrel here in the US, and nearly $130 overseas.

Then you had the Libyan problems, which certainly added another $10-plus to prices around the world.

Beyond that, it’s been a spring of really rough times for refineries. By rough, I mean they’ve had a lot of incidents and power outages and events that don’t represent anything structural, but sometimes happen in a cluster, like random events can happen.

All of that led to crude oil prices and later gasoline becoming untethered from the reality. The reality is that demand is down probably about two-percent from last year.

KUT News: I love the term “petronoia”. Did you invent that?

Kloza: I did, back in 1998. It was stolen by George Clooney, by the way, for his movie Syriana. But the movie was incomprehensible.

KUT News: Well, imitation is the highest form of flattery, they say.

Kloza: That’s it.

KUT News: But bottom line, it sounds like gas prices were driven up largely by potential disruptions to supply, not actual disruptions to supply.

Kloza: That’s true. And we will see more comfortable prices over the next 60 to 90 days. But trying to predict what prices will be in 100 days from now is really witchcraft, because oil prices move with the economy. If we were to have a sovereign debt default, or a very, very strong dollar or weak dollar, it will have a big impact.

In the next 30 days, it’s pretty easy. Most parts of the country are going to see prices drop by anywhere between 10 and 35 cents a gallon.

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