Gas price hype.
It is spring and gas prices are rising and so is the hype surrounding price. Analysts and pundits, caught up in a rash of gas price exuberance, are making wild claims of almost $4 a gallon. While in the world of oil anything I suppose is possible, the truth is there is practically no valid reason to make that assumption. As Bloomberg news and the Energy Information Agency pointed out last week, gasoline tumbled on speculation that supplies will be adequate to meet demand as refiner's ramp up production for the summer driving season. The Energy Department reported that refineries accelerated rates to a six-month high last week. Total fuel demand fell 0.6% to 18.9 million barrels a day. The department forecast April 6 that summer gasoline demand growth will be slower than in 2009 because of higher pump prices. At the same time gas demand is weak. Gasoline demand during the summer will increase 0.5% above a year earlier, lower than the 0.8% growth rate in 2009 because, "the stimulus to demand from the continuing modest economic recovery is constrained" by higher prices at the pump, the Energy Department said. The EIA forecasts that regular-grade motor gasoline retail prices will average $2.92 per gallon during this summer's driving season (the period between April 1 and Sept. 30), up from $2.44 per gallon last summer. The forecast has the annual average regular grade retail gasoline price increasing from $2.35 per gallon in 2009 to $2.84 in 2010 and to $2.96 in 2011, primarily because of projected rising crude oil prices. Average U.S. pump prices for regular gasoline are likely to exceed $3 per gallon at times during the driving season, and already exceed $3 per gallon in some areas. Projected annual average retail diesel fuel prices are forecast at $2.95 and $3.12 per gallon in 2010 and 2011, respectively.
Besides that if we are going to get to $4 a gallon gas we have to get to $3.00 a gallon first. Oh sure according to AAA last week gas prices hit the highest level since Oct. 22, 2008 yet they are still shy of the $3 mark coming in at a nationwide average of $2.862 per gallon. Yes I know in certain parts of the country prices are above $3.00 a gallon yet if you're going to make a blanket prediction across the nation, the nationwide average is the one you will use. Gasoline demand during the summer according to the report will increase 0.5% above a year earlier, lower than the 0.8% growth rate in 2009 because, "the stimulus to demand from the continuing modest economic recovery is constrained" by higher prices at the pump according to the EIA. So don't cancel your vacation just yet.
Still I have to admit I was wrong about which way oil was going to break out as the seasonal tendencies and the lack of concern over increasing interest rates helped feed oil into a higher trading range. Still despite the breakout and the lack of fiscal responsibility, I still believe that the upside might not be as explosive as it could have been. The situation in Greece helped temper the bullish enthusiasm as well as last week's bulging inventories. Though technically oil has the green light to move higher, it still may face some macroeconomic headwinds. We still feel the best way to trade it is by playing the range.
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at firstname.lastname@example.org.