Dec. 20–Lower gasoline prices may seem like an early Christmas present for the 102 million people AAA is projecting to hit the roadways this holiday season, but those prices also reflect uncertainty in the overall economy, said Patrick De Haan, an analyst with gasbuddy.com that tracks the world oil and gasoline markets and its effects on the nation.
“Be careful what you wish for,” De Haan said Tuesday. “There’s not a shortage of economic jitters out there. There’s a certain omen that comes with low prices. So gasoline prices have a tendency to be a barometer of what’s to come.”
According to AAA, the average price of a gallon of regular unleaded in the Iowa Quad-Cities on Wednesday was $2.08, down from an average of $2.40 a month ago. Mid-grade stood at $2.31 per gallon, down from $2.70 a month ago, while premium was at an average of $2.80 per gallon, down from $3.07 a month ago.
In the Illinois Quad-Cities, regular unleaded was averaging $2.24 a gallon on Wednesday, down from $2.60 a month earlier, while mid-grade was at $2.58, down from $2.99 a month ago, and premium was at $2.93 down from $3.33 from the previous month.
The main story Tuesday was the oil market. Crude oil is exchanged on the global market in U.S. dollars.
Oil for January delivery lost $3.64 on Tuesday to settle at $46.24 per barrel on the Chicago Mercantile Exchange.
“That’s a testament of how much weakness there is in the oil patch,” De Haan said.
Oil prices have had a lot of support with OPEC (the 15-member Organization of Petroleum Exporting Countries) and its Russian allies electing to cut production by 1.2 million barrels per day for six months beginning in January, he said. There also has been some optimism that the trade war with China will soon be resolved. But oil prices continued to hang around the $50 per barrel mark, and then Tuesday crude dropped.
Housing is strong and the economy appears strong, De Haan said, “but there’s still a lot of concern about the economy and a lot of that has to do with China. And, of course, the U.S. has issued waivers to countries for purchasing oil from Iran.”
With the stock markets taking a beating in the midst of all of this, he said, there are a lot of economic analysts scratching their heads.
The drop in oil prices Tuesday could open the door to another decline of 5 to 15 cents a gallon, “if it sticks,” De Haan said. “We could look for a dead cat bounce tomorrow where it will bounce back up,” he said. But such bounces are usually short-lived.
Crude oil for January delivery closed Wednesday at $47.20 per barrel on the Chicago Mercantile Exchange, up 96 cents.
The country already is in the middle of the season of weak gasoline demand, he said. “Gasoline prices will stay far off their summer values,” he added.
Crude production in the U.S. has been enjoying record highs, as well, De Haan said, more than 11 million barrels per day. “It can’t go up much more. The refiners can’t really process much more of it so our exports are near record levels. All that extra oil is going south of the border.”
The light shale oil that America produces is used for gasoline, he said. “This is not the summer driving season so nobody wants more light product for producing more gasoline. What they want is heavy oil like Iran has to produce more diesel. So if those waivers from the U.S. for Iranian oil are canceled we’ll be in a world of trouble.”
The price of gasoline is on the shoulders of what happens with the U.S. economy and what happens with China, he added.
“At some point, if there is a broad recovery and the trade war is wrapped up in a bow, then we’ll see oil prices going up,” De Haan said. “The Chinese have dangled the piece of meat in front of the tiger but he hasn’t taken it.”
The bottom line is oil prices are down because there is “just too much uncertainty” in so many different areas of the economy, he said, adding it is important that the U.S. and China bury the hatchet and come to terms on trade.
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