Back in the day… $1 gas

By Pete Southern in LiveWire Economics Blog | December 10, 2008 14:19 |

News came late Tuesday (December 9) evening that democratic congressional leaders and the Bush Administration had agreed in principle on a $15 bailout plan to help the failing auto industry. The amount of the deal is less than that requested by the Big 3 CEOs last week, but it the proposal reportedly would give the government unprecedented control over the restructuring of the auto industry. Some of the public commentary Monday and Tuesday included discussion for and against the removal of the CEOs at Ford, Chrysler and GM as part of the bailout deal.

As officials have been working toward an agreement on auto to help preserve millions of jobs and economic stability, gasoline continues its decline in relentless fashion, thanks to oil prices that sit just above $40 per barrel for light sweet crude. Oil speculators are watching to see if OPEC will make bold moves to cut output to help stabilize prices in a market that has seen a drop from a record of $147.27 per barrel in mid-July to a current price that is over $100 lower.

Investors will be watching a key report releasing Wednesday morning that is expected to show another drop in oil demand by US markets. Ongoing declines in demand for oil in the United States have been a strong contributor to global price falls.

Some leading analysts, though, are beginning to suggest that oil has been oversold at the current market in the same way it was overbought in the summer market. One leading analyst commented Tuesday that some economists believe a bottom is near for oil and a return to the $60-70 per barrel price point is likely by mid-2009.

Gasoline prices have been the strongest silver lining in the dark economic cloud for consumers and businesses in the last few months. Prices continue to drop as oil demand and prices fall. Talk is beginning to pick up that the US could see a price point many thought would never be seen again in our time – $1 gas. It is simply astounding to think that we are talking about the potential for sub-$1 gas less than six months after staring $4-plus in the face.

Many younger drivers are unfamiliar with the sub-$1 gas concept. According to AAA, the last time gas was below a dollar was in March of 1999, nearly ten years ago. Most people never expected to see this mark again. We may have to wait another generation for future storytellers to tell their grandkids about “back in the day” when gas was below $1 per gallon.

Despite the optimism, the suggestions that oil declines are bottoming could hinder the movement of gas toward the $1 mark. Even with its 1.6 cent overnight drop to $1.773 (according to AAA and the Energy Information Administration), gas prices still have a ways to go. Some Midwest markets are much lower. Many gas stations are seeing $1.20s-$1.40s this week. However, if oil prices really are reaching a bottom, and if OPEC does make a move on output cuts, it would likely take another catalyst to help push gasoline prices lower. Perhaps a stronger dollar? Hard to see that coming anytime soon.

Market Recap

The Dow rallied again Monday, climbing 298 points to start the week. News of a massive infrastructure bailout plan in the works by President Elect O’bama was the spark plug. Tuesday, the Dow gave back most of Monday’s work, losing 242 points. The NASDAQ and S&P were off 24 and 21 points. Tuesday evening, news came of a deal in princple of a $15 billion bailout agreement between democrats in Congress and the White House. The deal is said to give unprecedented control of the auto industry to the government.

Neil Kokemuller
Tuesday, December 9, 2008
11:09 PM EST

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

Please note: The information provided in this article is intended for informational and entertainment purposes, and not as advice for financial decisions or investments. Actions taken on the basis of the information shared is at the sole risk and discretion of the individual. Currency investment poses significant risk of loss.

Pete Southern About Pete Southern
Pete Southern is an active trader, chartist and writer for market blogs. He is currently technical analysis contributor and admin at this here blog.



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