Gas Price Predictions, My Timing Was Off A Couple of Years
In December 2005, following Katrina & Rita, I was so sure that gas prices would continue to elevate past the three dollar point by the end of 2006. Boy was I wrong! To make matters worse, in June 2006 I was smugly confident that gas would be three-fifty by the end of 2006. In June of 2006 I wrote the following:
Back on December 30th [2005] I predicted that by the end of 2006 “a gallon of regular gas will exceed $3.00, not due to a natural disaster or terrorism.†I think that prediction might turn out to be a major understatement. At the time regular gas in St. Louis was around $2.20/gallon.
Yesterday when I left my house for dinner regular at the two stations near me was $2.69/gallon. Just a couple hours later the price was $2.88/gallon (shameful I didn’t have my camera with me). Today I noticed the price has settled to $2.84/gallon. This is all for regular. Premium fuel, like my former Audi required, is now over $3.00/gallon. Places in metro East are seeing regular in the $2.94 – $2.99/gallon range.
So today I’m revising my estimate, I think we’ll see regular gas at $3.50/gallon before New Year’s Day 2007. And I don’t mean some spike brought on by a hurricane or such. Just normal everyday pricing.
In reality I was not wrong, just off on my timing a couple of years, give or take a few months. Looking closer at the per barrel price of crude oil and I can see where I made my mistake in timing.
In September 2005 oil was pushing up toward $60/barrel following Katrina+Rita and refineries were knocked out along the gulf coast. The market was in place for a short term gas spike. By December, when I made my premature prediction, the price of a gallon of oil had dropped to just pocket change below $50/barrel. I wasn’t totally off, we had started 2005 in the low 30s per barrel so ending up pushing $50/barrel was a big increase.
This month oil prices have been in the high 80s to mid 90s, a considerable distance from $50/barrel.
Yesterday’s LA Times reported (free registration required) that analysts are projecting a US average around $3.50/gallon in the first half of 2008, as demand increases:
“If anyone expects gas to be less than a new record, they are not thinking,” said Fadel Gheit, senior energy analyst for Oppenheimer & Co. “There is no question it will be much higher than last year.”
Americans will start 2008 paying about 65 cents more a gallon than they did in January 2007, according to the forecasts, and by April could see self-serve regular selling for $3.50 to $3.75 a gallon.
In California — where gas this year has fetched as much as 50 cents more than the national average — $4 a gallon “will no longer be considered a rogue number,” said Tom Kloza, chief oil analyst for the Oil Price Information Service. “It will list for that much in a lot of places.”
The Energy Department’s weekly survey of service stations Monday found the average pump price was $2.980 nationally and $3.261 in California, a couple of pennies lower than a week earlier — but much higher than the same period last year, when the number was $2.341 across the U.S. and $2.607 across the state.
Pump prices usually fall between Labor Day and the end of the year, in recent years dropping about 17% in California. This year they did the reverse, gaining 17%. Â
These will not be peaks and then drop back below $3/gallon. Demand continues to increase, both in the US and from other countries such as China and India. World populations are increasing, as are vehicle registrations and total miles driven. Not a formula for lowering prices.
All you folks with your V-8 SUVs and your 40-mile one-way commutes, get ready to pay lots more. Sadly, the working poor who need a car to get to their jobs will also be paying more as well. While some can handle the increase, others will not be able to do so. And while many can handle short-term increases the long-term impact will be felt as consumers slow down their consuming to afford the gas for the Explorer.
Of course, this is an election year so that adds a whole new layer to the mix. Will the Republicans in Washington find a way to artificially lower/stabilize prices between now and the November 2008 election? Many factors such as the fallout from the subprime mess will really screw up the economic situation in 2008.
What will be interesting is how rising gas prices, combined with next weeks shutdown of highway 40, will impact the voters in St. Louis County with respect to a sales tax increase in August to help support ongoing operations at Metro as well as fund some future expansion. Will the voters be see the folly of being so dependent upon cars that they decide to fund better transit or will they conclude they are already paying more money for gas and therefore can’t afford any more taxes?
Back to the LA Times:
Motorists found the New Year predictions infuriating.
“It’s absurd, ridiculous,” said Eric Mills, 40, a special-event coordinator for the entertainment industry, as he filled up his 1990 Honda Prelude with $3.399-a-gallon gasoline at a downtown Los Angeles Shell station.
“Every year I hear about fuel cells and other promising alternative fuel possibilities — and every year I’m still putting gasoline in my car.”
For all of you just waiting for that new fuel cell Taurus or Caprice, don’t hold your breath. While these alternatives might pan out in a decade or so they are not going to help you this year.  Interestingly, motorists just keep motoring as if one day they will just instantly trade the gasoline powered car for some fuel cell car and things will continue as before. How simplistic.
Today’s Post-Dispatch has a story on people selling storage condos in St. Charles County. For $40,000 you can get a storage unit for your extra car, boat or RV. I guess when your 3-car garage is full that is what you do, buy a storage unit. For these folks, the new reality that we are seeing unfold will come as a big shock. When the market crashed in 1929 it was not the poor man jumping out of office windows. Of course, today, the business man in Earth City doesn’t have operable windows and is likely at most on the 2nd floor.
So my predictions for 2008? Nothing specific, I learned my lesson on that. Gas prices will continue their upward trend, malls will continue to be yesterday’s news as people seek open air street-like shopping districts or actual shopping districts. Projects in far St. Charles County that people think are temporarily on hold will be permanently on hold. Developers and home builders will realize that 2008 is different than 1958 — the demographics are different, cheap gas is gone and people are seeking quality public space. It will look rough while we are in it but in 2009 and beyond we will be thankful.
From teaching forecasting to graduate students, my first line is “Your forecast will always be wrong.” That way I can set their expectations of working to improve the forecasting method to be more accurate rather than just trying to be right. The thing about the LA Times article (and most news articles when they do this kind of stuff) is that they don’t give you enough information on their method of prediction in order to detrmine whether it is accurate or they are just pulling it out of their a@@.
That being said, I’m glad that we not only got rid of 1 of our 2 cars last year, but we recently traded in our 16 MPG mini van for a 27 MPG car (both city mileage). By my caluclations based on our driving history (about 12000 miles per year), we will save about 3/4’s of the extra payment every month if gas is at $3 per gallon. At $3.50 the extra car payment is a wash.
When will the first wacko come out of the closet and say that the Republicans will somehow depress gas prices so they can keep control of the executive branch in 2008?
Upon reading Felton’s words, I suddenly feel much dumber. Please rescue me.
Can someone explain how the President has any effect on gas prices?
Predicting the price of gasoline is a fool’s game. Should the US economy truly be softening one would expect the price to come down as a weak US economy will slow China’s presumably. A lot of the current price increase can be attributed to a weak dollar which has probably seen most of its decline already. All said and done, gas is still well off its peak in 1980.
In sum, who knows where gas will be in the coming year.
Ultimately what we see as the consumer is price of a gallon up on the big board of a street side sign. That gas originated somewhere underground and eventually ended up in the gas tank of a vehicle. From underground to gas tank there were a plethora of variables that adjusted that price on the board and of course how it ultimately it effects people economically is another variable in a different equation. When things start to go bad economically is of course when we start looking for someone to blame, which in your post, the republican party came into the crosshairs. I agree they haven’t done a whole lot to help but that I do believe democrats put in some restrictions for domestic oil drilling putting us more reliant on foreign oil which attributes to a deflated currency. Refining capacity in the US hasn’t expanded in a while but in the mean time, the number of blends required to be produced has increased. I don’t think miles driven but gallons consumed (demanded) is probably what should be scrutinized, which I’m sure has steadily grown along with miles driven but the type of vehicle being driven can effect gallons consumed. No new nuclear facility has been built in 30 years and the US has an abundance of coal. Energy has to come from somewhere and any way you go at it the environment will have to take a blow. How much you consume and what gets divided up for what is all adjustable. I agree our past 50 year strategy is running into some problems and changes will be necessary but there’s plenty of blame to go around. Also, reducing dependence on foreign oil and reducing carbon emissions are NOT the same thing. A great comment I heard before, “During the upcoming gas increase we’ll just have to spend some of the money we’ve been saving while gas was cheap.†It will be interesting to see what we pay at the pump in April and May.
So they are selling storage condos. Big deal. If you didn’t notice, there are places that rent storage units all over town. I can’t imagine why a person would want to buy rather than rent – the payment on a $40,000 unit is going to be far in excess of what you’d pay to rent even a very large storage unit. But hey, if people want to spend the money, what do I care?
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I don’t see how you get from storage condos to people jumping out of windows, though. Believe it or not, somebody who is making six figures doesn’t care if gas is $4 a gallon. The people I know who earn enough money to be considered “not the poor man” aren’t skipping meals to gas up their SUVs. No, that would be the people driving around in a “buy here pay here” who are doing that.
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And one more thing … most of the businessmen who would have been jumping in 1929 aren’t in Earth City. Sure, there’s a few office buildings out there, but it’s mostly warehouse and distribution space. For offices, you’d have to look in Clayton, the highway 40 corridor, and downtown.
When society decided to “pave paradise and put up parking lots” what do you expect, lower gas prices? If society wants lower gas prices then simply get out of your cars, get out of your buses, get out of your trucks, get out of your motorized vehicles, and walk or cycle. When that happens and a superior/efficient allocation of fossil fuels is established, then even the poor can afford gas, food, heating fuel, and we can all breathe easier.
So many issues are raised and yet the anti-spam word is dialog…how appropriate.
The government needs some serious dialog about our oil dependence. Not even the 1/2 billion $$$$ expansion at Wood River will help us, not with markets dictating the oil futures prices, the housing crash, recession almost upon us, the value of the dollar crashing, etc.
Not to be a nay sayer, but our cutting back on driving, even if we were all to stop at once will only slow the inevitable. We need more new-technology power plants, transportation, etc. China hasn’t even begun to wake up yet. And India (assuming they don’t get drawn into a war with Pakistan over recent events). These up and coming countries are just beginning to develop a middle class….and they all want the American lifestyle in their own countries with their own suburban houses and their own SUV’s.
The overly auto dependent person typically attempts to avoid the direct correlation and cause-effect between consumption and availability by predicting that the last drop is inevitable. So is death so we shouldn’t try to improve our lives and surroundings anyway?
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Stating that everyone wants the suburban lifestyle of America displays a similar level of insight. In my conversations even with suburbanites, many recognize and accept that there are more negative tradeoffs than originally thought. Many are now recognizing that the sprawl is unhealthy for them and their children. An ongoing problem is government organizations like MoDOT are in control and changing infrastructure and accountability are difficult.
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In StL region, the demand and consumption of fuel will rise considerably with the closure of 64. This is inevitable if the public refuses to walk, cycle or use mass transit in much larger numbers. But of course that is unlikely to occur as Cars-R-Us and leadership failed to adequately plan and make alternatives to autos convenient or available.
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My Euorpean friends and family members are always amazed to hear Americans claim that they (other cultures) all want the American lifestyle. I guess that’s why the US dollar isn’t plummeting faster, heh?
It has been, and will continue to be, simple supply and demand. If the economy tanks, gas will be/remain “affordable”, but it’s hard to fill your tank if you don’t have a job. If the economy expands, especially in countries like India and China, relative scarcity will drive up prices. It then becomes a choice among priorities, including choices between vehicle size and personal ego, and in deciding where one (continues to) lives and where one (continues to) “works”, be it it employment or school or a combination of both. The equation that states one drives to find housing affordability around major urban areas (and to a lesser degree around St. Louis) will change – many people will choose something smaller and/or relatively more expensive to shorten their commute and their growing expenditures on vehicles and fuel.
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The wild card here is the growth in suburban employment opportunities. A commute from Cottleville to Clayton involves spending several dollars a day on fuel. A commute from Cottleville to Westport is half as expensive. A commute to Progress Point is half-again cheaper. We can’t assume that downtown, St. Louis or Clayton, is the only answer these days. Conversely, choosing to make the longer commute is something many people are willing to pay for for the perceived benefits of a specific neighborhood, be it Washington Avenue, Soulard, Wildwood or O’Fallon. That’s what’s called choice – we have it and we make it. Increasing gas prices will alter the variables, but won’t eliminate all choices . . .
> We can’t assume that downtown, St. Louis or Clayton, is the only answer these days.
Definitely true … highway 40 from 270 west is full of office buildings, as is much of 270 south of 40. People live and work everywhere … which can mean shorter commutes for some people. It also makes light rail useless, because it depends upon a small number of central business districts.
I personally prefer a walkable community with easy access to commerce and recreation, close proximity to as much of the metropolitan area as possible, and the ability to get places without being totally dependent on bridges and major highways. That’s why we moved to Ferguson – it had nothing to do with gas prices. People who choose to live in St. Peters won’t be deterred because their gasoline bill jumps by $50 a month. And I’d bet that most people here wouldn’t be living in O’Fallon, even if gasoline was free.
“Can someone explain how the President has any effect on gas prices?”
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He doesn´t. Only an idiot would suggest that he does. Oil prices, and by extension gas prices, are set on a world market. It´s that pesky supply and demand thing.
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The sad part is, these idiots are allowed to vote, which is why we get the “leaders” that we do.
OPEC, a cartel, determines supply. OPEC determines gas prices. Why are we not member of OPEC? Because we don’t tap our resources.
Seriously, how stupid can people be? I bet if we released all the oil in the Strategic Reserve, gas prices might go down a few cents a gallon. For a few days. Then prices would go right back up as we replentished the reserve.
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People who think that gas prices are determined by some super sekrit international conspiracy (no doubt run by the jews) are probably the same ones who think that someone other than LHO killed JFK.
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It´s called “critical thinking”, folks. Try it.
As far as open space in St Charles, as an avid outdoorsman, I am nothing short of astounded at the rate they have been acquiring acreage for their park system. Their mountain bike trail system will soon be better and bigger than StL county, making me very jealous. Otherwise “F#$# St. Chuck”. Another question along these lines, how come Jefferson County, especially the north and east sections of the county are horribly deficient in their open space, with very few parks and acreage for the public? Seems like that would have been a no brainer??? Maybe they are taking the opposite approach of the greenbelt and are shooting for the vinyl belt?
The most it has taken to fill my 2006 Vespa LX 150 is around $5.50, that’s when the price for the premium grade gas my beloved scooter requires was around $3.39 a gallon. I LOVE pulling up to a gas pump in West County on my way home from work, filling up after some schmoe just put about $60 in an SUV.
Scooters are the way to go as may will see tomorrow when I scoot out to work.
Today (1/1/08) there is a ride for all scooterists in and around these parts. We are meeting at the statue of St Louis outside the Art Museum in Forest Park. From there we will ride down to the waterfront via Lindell and a couple of other streets.
Join us and see how fun riding a scooter can be!!!
There is a huge increase in investment activity for gasoline funds mostly based in the middle east. This has artificially inflated gasoline prices. This is the same as hoarding and should be banned in my opinion. The oil companies have very little (but some influence on prices no doubt) to do with any of these huge price increases. Quick solution – Nuke China.
WE NEED ELECTRIC CARS. NOT TWO SEATERS THAT HAVE BEEN OUT ALREADY BUT A REAL CARTRUCKS AND SUV’S. OTHER WAYS TO HEAT AND COOL OUR HOMES. WHAT ABOUT GROCIERS, THATS CRAZY PRICED TOO. SOME OTHER SOURCE OF ENERGY. THAT LOWERS THE SUPPLY AND DEMAND AND THEREFORE LOWERS GAS PRICES. BUT DON’T KID YOURSELF WE ARE BEING TAKEN ADVANTAGE OF…….
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