Monday, July 27, 2009

annual gas price forecast

As promised, here are my annual gas price forecasts. While I did blow it last year, I have provided my readers with somewhat accurate forecasts for 5 out of 6 years, and the one time I did blow it, if they did follow my advice by living very frugally, no harm should have come from it.

The Bottom Line, Right Up Front.
I am forecasting gas to be $3.22 early next May.

The ever increasing role of China, the recession, and the prospect of a high inflation rate are challenges, but in this year's forecast, I think the ongoing recession will mostly cancel out the other two, leaving the economics in balance. A slow increase in consumption, coupled with some optimism in the markets, and a steadily increasing cost of production seem to be the prime factors in driving up the cost in the next several months.

Here is the formula I used this year:
The predominant price of crude oil in July this year
is $68 a barrel, divided by 25 (you can get about 25 gal
of gas at the pump from one barrel of crude) gives
$2.68 - to which I add $.50 tax (the tax in some states
is much higher) to give $3.18 per gallon.

I will likely, in coming years, add an inflation factor to compensate for the weakening of the dollar, and maybe a supply stress factor for increases in consumption. In addition, the price of oil seems, historically to rise at the end of July, and there tend to be disasters in Aug and Sept, as well as hurricanes in the fall, but the prices have these things built in so I don't think getting too concerned there is of any use. But this year, I don't think those need be applied.

some optimism in the markets (I don't agree)

why I think economic forecasts may be overly optimistic

Bernanke Says

A Jobless Recovery - but with extra pain.

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