When gas hits $5/gallon…..

Leading, or trailing? A leading indicator would mean that gas prices drop prior to the increase in unemployment. Possible, given the affect speculators have on the market. A trailing indicator would mean that gas prices drop after the increase in unemployment. Your rationale would seem to indicate its use as a trailing indicator - unemployment increases, causing a decrease in commutes, a decrease in purchases, and a decrease in overall transportation for all kinds of goods. After enough time to ripple back through the supply chain, this would result in an over supply of gasoline relative to the new, lower demand, and a resultant new equilibrium reached at a lower price. That all assumes traditional supply/demand curves, and doesn't really take into account the specifics of the oil industry, where speculators set price more than consumers.

 

You're right. That is my analysis - I just mis-wrote.

 

It's not strictly speaking a weaker economy. Some of it is, but a lot of it, I would guess the majority of it, was from high gasoline prices due to refinery problems hurting demand in the world's largest oil consumer, which in turn hurt oil consumption and oil prices. On top of that, by the time demand recovers, a lot of the pressures like the Libyan civil war that brought oil from ~$80/bbl to $100+/bbl in the first place will have eased. I also think OPEC is more worried about maximizing net revenue than their profit per bbl. They'll crank up output to lower prices if they think a 20% increase in price will decrease revenue by 25%. The more money they can make now the better, because GHG emissions and alternatives like EVs are more and more of a problem for their business model moving forward.

 

Just a question of time for $5 / gal gas. I think it will be around $5 in about a year, as the economy improves, people drive more, probably returning to gas guzzling suvs. Also state and the federal govts could increase the tax / gal.

DBCassidy

 

I wouldn't bet on it hitting $5/gallon next year. That would require something like $200/bbl, or an extra couple dollars in taxes, both of which are fairly unlikely.

 

If gas hits $5/gallon then I will be cruising around the block all day and night like it's 1995. Then I will take a bath in milk, assuming that prices for milk fell just as much.

/Europe.

 

$3.04/gal unleaded here.