RBOB gasoline futures (NYMEX:RBV13) hit a new low for the year right after AAA says that Chuck Mai, spokesman for AAA Oklahoma, said, "Paying less than $3.00 per gallon for gasoline may be automotive history for most Americans, like using 8-track tapes or going to a drive-in movie." So I guess what he is saying that we may never see gas fall below $3.00 again – or at the very least the next 1,000 days.
One thing that I have learned in my 30-plus years in the futures industry is to never say, never. In fact in most cases when you hear someone predict that something will never happen, they are most likely wrong. For example when you heard predictions that the United States could never lose its "Triple A" credit rating. Or that oil could never go above $30 a barrel because it would put us in recession. I could go on and on, but when it comes to predictions you never say never even after the national average price of gasoline surpassed $3.00 per gallon Tuesday for the 1,000th consecutive day, which AAA says this is the first time on record.
Obviously I disagree with AAA. While they are predicting a new era of higher gas prices I am predicting that we are closer to the end. In fact I predicted an era of higher gas prices when we went above $1.00 and $2.00 gallon years ago, but all eras eventually come to an end we are coming to the end of that era, not entering it. The current streak of above $3.00 gas started on Dec. 23, 2010. AAA forecasts the national average will remain above $3.00 per gallon for at least another 1,000 days barring a major economic recession. I predict they are wrong and I will tell you why.
Demand is number one. U.S. demand for gas is at a 12-year low and is poised to trend lower over the next 1,000 days. Longer term it is even bleaker for demand as alternative fuels are cutting into demand. We are seeing more fuel efficient cars. We are going to see reliable electric car alternatives such as the Volt and the Tesla that will soon become cheaper and more plentiful. We also have the switch to natural gas for many cars, trucks and busses. That is less demand for oil, which should bring down prices. It is not $3.00 gas that is going the way of the 8-track, it is the internal combustion engine. We also are driving less miles. The U.S. and their aging population will mean that miles driven will fall.
At the same time U.S. oil production is booming! Oil production in the U.S. hit a 24-year high in August. To complement that, we have spent the last 1,000 days working in the pipeline and refining community to take advantage of this new bounty of supply. U.S. gasoline production is near all-time highs. The U.S. is capable of producing more gas each day than we consume each day. And now the infrastructure is catching up to our booming supply capability.
It is not that I don't respect AAA, because I do. I just have a different outlook. I, like anyone, know the pitfalls of making predictions. One local news anchor still gives me grief after he pressed me for a prediction on gas prices. He then hammered me when I said they would go down and they went up. I should have prefaced New York prediction that gas prices would go down unless a hurricane developed that took 80% of the freaking reefing capacity on the Eastern Seaboard! So If I am right and AAA is wrong, I will be the last one to criticize them. But I think they will learn that you should never, say never.