Gas Prices Demystified

The following article provides some boilerplate explaining gasoline prices with some handy links and a table of fuel-efficient cars.

The article contains the views of three analysts including one from the EIA about what we might expect gasoline prices do in the next six months. Of course, none of them actually know what is going to happen but don’t let that stand in the way of you listening to them.

Gas Prices Demystified
Why you’re paying so much, and why you could soon be paying less.
By Doug Newcomb

Irrational Exuberance

Tom Kloza, chief analyst of the Oil Price Information Service, says the recent run-up in oil prices is due more to speculation in the commodities market than to supply shortages and the growing economies and populations in Asia. “The EIA has been steadfast in saying that it’s all about supply and demand, but I disagree,” Kloza contends.

“It’s not the demand from average Joes, but demand from hedge funds, banks, commodities pools and so forth that’s responsible for taking crude oil from $70 to $110 a barrel. There are a lot of huge funds that are invested in commodities, and one of their favorites is crude oil.

“I estimate that there’s about $25 billion in oil futures — and that’s $25 billion speculating on a higher price right now than a lower price,” Kloza adds. “I think you’ll find a lot of people in the oil industry will agree, and they’re not going to complain if Wall Street is carrying the water for them. They’ve been the beneficiaries of that irrational exuberance.”

Like many who follow the oil industry, Kloza believes that the price of crude oil is “overheated” and due for a correction.

“I compare it to the housing market a few years ago,” he says. “It’s been lifted by the sentiment that the oil market is a place where you can’t lose money and values will move up higher and higher every year. But I think we’ll see less of a bubble burst and more of a letting the pressure out like we’ve seen in the housing market. It could be a template for what we’ll see in oil.”


“A couple of things are going to work in the favor of a more temperate price of gasoline down the road,” adds Kloza. “Ethanol is going to displace a lot of the demand for gasoline because it’s going to take 10 percent of gasoline out of the formula and replace it nearly everywhere east of the Mississippi this year. The second thing is prices won’t be up a spectacular amount from previous years; it may be up a percentage point or so. But this is not the start of the $4- to $5[-dollar-a gallon] apocalypse for gasoline.”


4 Replies to “Gas Prices Demystified”

  1. “But I think we’ll see less of a bubble burst and more of a letting the pressure out like we’ve seen in the housing market. It could be a template for what we’ll see in oil.”

    Yeah, a couple years from now they won’t be able to give the shit away. JR, this guy Kloza is such an ass, why do you torment me.

  2. Didn’t we all get educated about how the crack spread means that with $100 oil, gasoline ought to be $4.50? Perhaps $117 oil may bring us $5.265 gasoline before we know it.

    The folks at work were talking about half-day pump price increases that almost couldn’t be believed. I’ll go take a gas prices tour in Mass on Sunday morning, hopefully early enough to avoid the crazed locusts that hit the roads around 11am in search of something to buy.

  3. It shouldn’t take a rocket scientist to figure out that when oil went through the roof, consumption was going to plummet. Of course when oil goes up, everything else does to, as oil is what brings it to us via trucks.
    Why did it go nuts? Mostly speculators buying “futures” that artificially drove it up, and of course the oil companies happily went along with it. How did it get to this point. Because of a stupid Democrat president whose initials are WJC, got the law reversed that kept the stock market from doing crap that it did before the ’29 Crash. Now, because of that idiot stunt, we are going to go in another depression and this time there will be the biggest “war” in this country when it gets down to every man for himself. You better have some guns this time or your family will be in grave danger from others trying to get what you have any way they can. Just be warned, and before you call me a nut, just look around you. WB

  4. W Barnsdall,

    Oil, silver, gold, and every other commodity is going down because the system has been flooded with margin calls and people are selling off good assets to cover bad debts, all at the same time. There is a glut of everything, including oil, and it is not all about demand destruction because of the formerly high price.

    Your argument about Clinton, I am open to, however it is poorly expressed in the above post. What law? How did it effect a “going to crap” process? Blaming Clinton for this depression is a stretch. I am open to being convinced, but you have not spelled it out here very well at all. Please elaborate.

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