After the Energy Crash of 2014

Comment on the January 1 prediction:  We got the hike to $2.09, but it didn’t come until Monday the 5th.  That’s close enough for me, so I’m scoring it CORRECT.

Wednesday, January 21, 2015, 8:00PM:  Sorry for the silence the past three weeks.  I’m having a hard time making sense of the numbers after the Energy Crash of 2014, although my stance right now is that prices are going to start rising as they usually do the first four months of the year.  Right now, January 13 looks like the day of the low for energy (oil closed at $45.89 a barrel), and we got just enough of a jump in wholesale gas prices today that, combined with recent retail drops, puts us in the price hike zone.  I am going to plan on a hike to the $2.09-$2.19 range in the next few days, maybe as soon as tomorrow.

I think what has contributed to the Crash was some traders or funds blowing up and having to sell their energy future contracts.  As an example of a currency trading firm that was wiped out earlier this month: glad I didn’t own stock in FXCM. –EA

Posted in Commentary, Predictions

New Year! New Game?

Comment on the December 17, 2014 prediction:  No hike the last two weeks of December, so the prediction was WRONG.

Thursday, January 1, 2015, 1:30PM:  Happy New Year to all our readers!  I appreciate that you come to read about gas prices, and I hope we can continue to help you save money during 2015.  Wow, on November 24, retail gas prices were $2.99 in Standale.  Today, it is $1.84, and $1.68 in Lowell.  Reports are that we have some of the cheapest gas in all of the U.S.  It has been remarkable.  What can we expect going forward?  I have to bow to history and expect to see prices move up over the next few months, as they usually do during the winter.  And we are due for a price hike, because drops in retail prices are finally catching up with drops in wholesale prices.  If the pre-price crash rules hold, we’ll see a jump soon to about $2.09 a gallon.  Friday? — Ed A.

Posted in Commentary, Predictions

Santa Says Enough’s Enough

Comment on the November 30 prediction:  Technically, I might not have been CORRECT, as I am not sure we got to $2.50 by November 7, but it was $2.41 in Lowell on November 8, and under $2 today, so … CORRECT-ish.

Wednesday, December 17, 2014, 2:30PM:  How do you like them prices?  Santa often brings gas price presents in December, but this year it is a big red bag of lower prices.  But let’s look at some history.  I re-set my spreadsheets on May 1 each year (due to the academic calendar), and here are the dates of the lowest prices I recorded the past several years in the May 1-April 30 period:

2013-14:  December 4, $3.03
2012-13:  December 19, $3.09
2011-12:  December 20, $3.12
2010-11:  July 13, $2.58 ($2.85 in December, and higher in January)
2009-10:  May 4, $2.13 ($2.32 in December, and higher in January)

The last three years, retail prices bottomed out in December, and then rose during the first few months of the new year.  This dynamic also occurred earlier in the last decade, and we saw a short-term low in December 2009 and 2010.  There are a number of reasons for this, including the different way gas is manufactured for the summer months, but the point today is that these sub-$2 prices are probably not going to last for long.  Today, energy prices are rising for the first time in a while (see, for example, the price of UGA, the ETF for gasoline), and that usually means that the retailers will look to re-set their prices.  So, I’m expecting a price hike by the end of the week.  $2.39?  After Christmas, I expect we’ll start to see prices climbing slowly through winter, as it usually does. — Ed A.

Posted in Predictions

Oil Prices Crash — Gas Prices Next

Comment on the November 14 prediction:  I am going to score it as WRONG, because retail prices haven’t dropped very much, and we actually got a price reset last Monday to $2.99 in Michigan.

Sunday, November 30, 2014, 3:30PM:  We saw a price re-set last week, despite a lack of fireworks in the wholesale market, although ethanol has been popping higher lately.  It make me think that our Big Red retail friends are trying to change the rules of the game.  Unfortunately for them, oil prices crashed on Friday, and based on UGA (the ETF for gasoline), so did wholesale gas prices, although I can’t find a wholesale quote this weekend.  So, retail prices have to go down significantly this week — we have $2.76 this afternoon in Grand Rapids, and I think we’ll see $2.50 somewhere in the area this week.  That’s a prediction. — Ed A.

Posted in Commentary, Predictions

$3.09? Really?

Friday, November 14, 2014, 9:30AM:  This week, we’ve seen hikes in Indiana to $2.99 and yesterday in Michigan to $3.09.  These jumps haven’t really fit the Gas Game historical pattern, and yesterday’s Michigan jump looks like a desperate effort to make up for some losses on old inventory purchased at a much higher price in September.  Expect significantly lower prices, as oil fell to its lowest price this year late Thursday, and gasoline futures followed.  Ethanol is back up, but I am still estimating a price to retailers of about $2.75, so there’s a lot of room to drop. –Ed A.

Posted in Commentary, Predictions

Heading back under $3 again. Here are some theories why.

Sunday, October 26, 2014, 5:00PM:  On June 5, there was a hike to $3.99 in Michigan.  Today, you can find gas under $3.  What a move!  Looking ahead, the recent jump $3.19 coincided with another drop in wholesale prices, so there is a lot of room for prices to drop this week.  I would be looking for gas below $2.90 soon.

Now, what explains this 25% drop in retail prices since June, and an even better record the past several years?  I have a few theories:  (1) In September, I wonder if some hedge funds got caught “leaning the wrong way”, betting on higher energy prices.  When that did not materialize, they had to liquidate their bets, causing a sudden drop in prices.  I have no evidence of this, other than I’ve seen this happen before, especially in stocks and other commodities.  (2)  There is significant evidence that the demand for oil and gas has been falling the past several years, while the supply has been rising, due in part to significant increases in US production.  We have been driving less, buying fewer cars, and fuel efficiency has been improving. Consequently, we have been buying less gasoline (which is what the Democrats wanted), while supplies have been increasing (which is what the Republicans wanted).  Hence, a bipartisan victory — lower prices.  (3)  Energy “investors” are looking at the Middle East differently than they did a decade ago.  Then, with the war in Iraq, there was a “global tensions premium” built into energy prices.  As our involvement in Iraq has wound down, the premium has slowly disappeared, and, in the case of the past few months, not so slowly.  What is confounding about this theory is that we have new Middle Eastern tensions (a.k.a., ISIS).  But, perhaps ISIS is not as big a deal as it appears, or perhaps the US really is heading towards energy independence as politicians have talked about since 9/11, and finally, in 2014, we are starting to reap the benefits.

In terms of the Gas Game, it is harder to predict price hikes when there are fewer hikes.  But I’m not complaining!!!! — Ed A.

Posted in Commentary, Predictions

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Wholesale Pricing

Crude Oil Dec 1475.50  chart-0.08
Rbob Gasoline Dec1.9125  chart-0.1226
Friday, November 21 @ 8:00 pm

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