Tuesday, July 27, 2010

Annual Gas Price Forecast

As promised, here are my annual gas price forecast, and it looks a lot like last year. While I did blow it badly a couple of years ago, I have provided my readers with somewhat accurate forecasts for 5 out of 7 years, and last year was not that far off, even with the economy doing much worse than many people predicted. The only thing that caught me off guard was that China's economy did worse than I expected.

The Bottom Line, Right Up Front.
I am forecasting gas to be $3.54 early next May.

This is in areas where gasoline taxes are low, and where the price has been hovering around $2.49 to $2.56 for the last couple of months. This web page will give an idea of the price of gas around the country. For next spring's pricing, just add another dollar a gallon.

In reality, I don't think it will get quite that high, but as I pointed out in previous forecasts, I do this for budget forecasting purposes, so if it doesn't quite get that high, there is no harm.

The ever increasing role of China, the recession the ongoing and somewhat deepening recession, and the prospect of a high inflation rate (which I don't think we will see this next year) are challenges, but in this year's forecast, I think the ongoing recession will be the most important factors in the coming year.

Here is the formula I used this year:
The predominant price of crude oil in July this year
is $76 a barrel, divided by 25 (you can get about 25 gal
of gas at the pump from one barrel of crude) gives
$3.04 - to which I add $.50 tax (the tax in some states
is much higher) to give $3.54 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, or for overt destruction of sources (think war). Neither of those are a factor this year. 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 market prices already have these things built in so I don't think getting too concerned there is of any use.

One concern is the ongoing oil spill (even though the well is now capped) and the disastrous handling of it because of both the incompetence of British Petroleum and the congressional grandstanding in our Federal Government. One consequence that is just now beginning to materialize is the movement of drillers out of US waters. This has the potential of worsening our recession AND increasing the price of gas at the pump by more than a dollar a gallon within a couple of years.

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