Tuesday, March 3, 2015

Are low gas prices here to stay a while?

I’ve been writing gasoline price stories for decades, and one thing I know is that no matter how much your sources say the numbers at the pump are related to supply and demand, most Americans think something shady is going on.

A year ago, who would have dared to think regular unleaded would be selling for less than $3 a gallon. Yet as I’m looking right now at the GasBuddy app on my phone, I see local prices are generally in the range of $1.90, with $2.15 reported at the Chevron on Grandview. Last week I gassed up my Subaru for $1.64. Horror! I expect very soon to see Facebook friends posting, “The fix is in!”

Is our era of good feeling coming to an end? This is a time of year when we see gas prices start to rise, typically peaking around Memorial Day. Conventional wisdom and past experience suggest our respite is likely to be short-lived, but Bradley Olson at Bloomberg Business dares to suggest that low oil prices could be here for a while and perhaps quite a while.

A growing consensus is emerging from the likes of BP Plc, the International Energy Agency, shale wildcatters and even the Saudis that a near-term recovery to $100-a-barrel crude isn’t in the cards. Instead, expect a range of $50 to $60 for at least the next few years.

When oil prices plunged sharply in 2008, they rebounded almost as quickly. Several months ago, industry and government touted the same U or V-shaped recovery this time out. On closer examination, a new factor in the marketplace — shale oil — has changed their minds.

“This is the new normal,” Dennis Cassidy, co-leader of the oil and natural gas practice for consulting company AlixPartners, said in an interview. His group sees an L-shaped chart that could extend for three to five years.

Unlike other petroleum formations, the nature of shale — with multiple inexpensive, short-lived wells — means producers can stop and start drilling on a dime. On the one hand, this allows them to quickly cut costs in a downturn; on the other, every time prices tick up, so will their output — renewing downward pressure on prices.

To read the full story, follow this link: L-shaped Oil Recovery Flattens V-shaped Market Optimists. And, as they used to say at the ESSO station, "Happy motoring!"