Friday, February 19, 2016

The annual gas price rise has begun

Two weeks ago, I called a bottom for the gas price in my old neighborhood at $1.39.  Last week, I reported that the stations in my old neighborhood had reached that level and could go lower.  They most likely didn't, as GasBuddy shows that the Detroit average for regular hit a low of $1.44/gallon a week ago on the 11th and promptly started rising.  Looks like I got the low exactly right.  Lucky me.

The Detroit average is now $1.66, which is exactly the price that I saw when I passed by the stations in my old neighborhood yesterday.  Unlike the past two weeks, I didn't top off Pearl's tank, as I thought the price was higher than it needed to be.  Given that the stations are usually a dime below the metro area average, so they should be at $1.56, and some nearby stations are selling regular for $1.49, I'm probably right.  I'll wait until next week, when I will need gas, and hope that the cheaper gas elsewhere hasn't disappeared.

Crude futures have also gone up, as Oil-Price.Net lists yesterday's closes for WTI at $30.77 and Brent at $34.28, three and four dollars higher, respectively, than the $27.94 and $30.32 the two futures were at last week.  Even more importantly for retail gas prices, RBOB has jumped 18 cents from last week's $0.90 to yesterday's $1.08.  Falling gas prices are over for the season.

Follow over the jump for one reason the price environment has changed.

Vox has an answer to the question of what caused crude oil futures to go up, amplifying the seasonal trend, in Saudi Arabia and Russia reached a deal to cap oil production.
Saudi Arabia and Russia, the world's two largest oil producers, joined Qatar and Venezuela at a big OPEC meeting to announce a plan to cap oil production and bring a halt to the slide in crude oil prices that's rocked global markets over the past couple of years.
I first mentioned the possibility of this happening in three weeks ago.
In the great game of Chicken being played by the oil-producing countries, Russia just flinched.  It wants to steer away from a crash with Saudi Arabia, which has pushed its gas pedal to the floor and is showing no signs of wavering.
Saudi Arabia has just won the game with Russia.  As for winning the game with the other oil producers, Vox is skeptical.
The key problem is that even though Saudi Arabia and Russia are huge producers of crude oil, they haven't been responsible for much of the recent increase in oil supply. So capping production at January levels, which is what they are talking about, won't necessarily do much to prevent new supply from coming online. The real sources of new crude are Iran and Iraq, and they're not party to the deal.
Last but by no means least, the United States — the world's No. 3 producer of oil — isn't party to any such deal and doesn't even attend these kinds of meetings, because we are net importers of crude oil.
Even if the Saudis and the Russians could get Iran and Iraq on board for production cuts to raise prices, if prices rise too much, US production will come roaring back.
Also, if prices rise too much too fast, the US will go into recession and drag oil prices right down with it.  That's what I'm expecting.

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