Friday, November 21, 2008

Gas Is Under $2 per Gallon - We're All Saved

Gas is under $2 a gallon! We’re all saved!

No. Sorry, you are not saved. The finite resource you know as crude oil is still finite. Here is a brief, generalized, and grossly overly simplified line of reasoning of why gas costs under 2 bucks per gallon now. Prior to the “Credit Crunch/Crisis” (that terminology is inaccurate…but if I don’t call it what CNN calls it some people might not know what I’m talking about). Anyway…before this whole economic downturn got going full steam, you’ll recall that oil was about $150 bucks per barrel. Gas was over $4 per gallon. That (among other things) was putting a major strain on most Western consumers. $4 gasoline (and it’s trickle down effect) helped cause the “credit crisis” by being an agitating factor when adjustable rate mortgages began to reset and just causing a strain on consumers in general. I felt it. Didn’t you? It wasn’t just the cost either, was it? It was the concern over when the next shoe would drop. Well the next shoe dropped, and it looked like a “credit crisis”. Unfortunately the shoe was not on a human. It was on a centipede and there are about 98 shoes left to drop. Did we take that analogy too far?

Onto something more interesting. What does the “credit crisis” do to oil..and what will happen in the future. What does it mean?!?!?!?!?!?

The price of gasoline has primarily gone down because demand has gone down. AND because future traders FEAR it will go down more and BELIEVE supply will outpace demand. Perhaps it will. Obviously, when people are doing well, economically speaking, they use more gasoline.

1. IF world economies makes a turn for the prosperous THEN demand will start marching right along again and the price of oil will test even higher prices as demand again knocks on the door of supply capacity.

2. IF the economy stays flat or dives further AND oil supply growth can truly keep up with oil demand THEN prices may go down even further for a time.

3. IF the economy stays flat or dives further AND oil supply growth cannot keep up with oil demand THEN…Katy bar the door….the price of oil will go up until another shoe drops. Ad Infinitum.

The 3 if-then statements, above, cover the most likely scenarios we will see in the next 2-5 years.

Tune in tomorrow when we wrap this up, tie it up with a neat little bow, and tell you what to expect for the next few years.

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