Monday, December 30, 2013

A boring ten days in the gas war plus a predicition for 2014

Since I wrote Limbo season is over, it's been a boring ten days.
Yesterday, the corner station charged into no man’s land again by raising its price to $3.29, while the stations down the street held firm.  Today, it dropped to $3.19.  By this evening, at least one of the stations down the street joined it.  I expect all of them will by tomorrow, so the cheapest gas part of the year is now over.
All the rest of the stations did join in, and the price remained at $3.19 in the neighborhood until Friday, when the corner station once again charged into No Man's Land, raising it's price to $3.49.  I knew that wouldn't last, as the three stations down the street held steady at $3.19.  I expected that the nearby stations would settle on $3.29, like the outlets two miles away, but, so far, that hasn't happened.  Instead, the corner station retreated all the way back into its trench, first dropping to $3.39 on Saturday, then matching the rest of the stations at $3.19 today.

While my prediction of where prices would end up ten days ago came true, my other prediction, that "prices will only go up from here until after New Years" hasn't, although things could change tomorrow.  Yes, the corner station raised its prices, and the none of them have gone below $3.19 since the 20th, but the three stations down the street haven't increased theirs and corner station ended up returning to $3.19, so it was a wash.  Just the same, prices will follow the seasonal pattern and start going up in the new year, although I don't expect higher maximum prices next year than this year.  That's not the case in California, as ABC 10 in San Diego reports in Experts believe gas prices will rise in 2014.

Drivers should expect to shell out more money at the pump, according to gasoline analysts.
That's from the station's YouTube channel.  Here's what the write up on their website also said.
Charles Langley – who has been tracking gas prices for years – says because of refineries closing, it is likely going to affect next year's prices. However, he does not believe prices will hit $5.

"We'll probably see an average price of $4 a gallon with some fluctuation from $3.80 to as high as $4.40 a gallon as long as oil prices are stable," said Langley.

The average price for a gallon of gas in California in 2013 was actually cheaper than 2012 -- $3.92 compared to $4.05. Both are still high when compared to 2011's $3.80.
As you can see, the report confirmed what I wrote in My thoughts on Helicopter Ben’s last press conference, that gas prices are high but decreasing, removing what New Deal Democrat over at the Bonddad Blog calls “the oil choke collar.”  As NDD pointed out last October The oil choke collar disengages - and that's good news.
The oil choke collar -- the dynamic by which an improving economy caused gas prices to rise to the point where they choked back consumer spending on other items, which weakened the economy, which in turn caused gas prices to decline -- in other words the mechanism that acted as a governor restricting growth -- has disengaged in the last few months. Gas prices are now 13% lower than they were a year ago, and even lower than they were two years ago at this time!
While I expect this trend will last until 2020 at the latest, when the increase in U.S. production from tight oil is projected to end and the country hits peak oil again, I think it will still moderate prices, as this graph from Doug Short shows.

Based on prices following a downward-sloping channel for the past three years, I project that the national average won't go above $3.80 or below $3.10 this year.  That means that I don't expect prices to increase year-over-year here in Michigan, and they certainly won't go as high as California's.  I'd post Professor Farnsworth, but I don't want to jinx myself.

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