Tuesday, March 01, 2005

Gas & Oil at a Glance: 022805

As you should be suspecting, what we're paying for gasoline, especially during the last couple of weeks, is way out of whack with where oil prices have been going, especially with crude surpassing $50 per barrel again. Considering the predominant ratios and spreads in recent times, to keep paying in the low 190's for petroleum, we will ultimately need to see oil about $10.00 per barrel cheaper than it is now.



In 2004, the average ratio of gasoline prices to oil - I call it the 'GOP Ratio' for short - was 1.9. Right now, the GOP stands at 1.56. Since October 11, 2004, it has been under 1.6 five other times. Yet, going back to the end of 2000, there have been no other instances of it having been this low. Plus, from 2001 through 2004, the GOP has tended to be higher during the second quarter, compared to the others. Last year, it averaged 2.11. A rise in the GOP Ratio seems a virtual certainty.


Then there's the spread: The difference between the retail price of gasoline and the cost of crude oil. In 2004, it averaged 86.72 cents. Right now it's 17 cents less, at 69.59. The spread has only been below 70 cents 15% of the time going back to the end of 2000. Compelling signs to expect the spread to 'regress' to more frequently occuring levels.

As I see it, if oil remains in the low 50's for any length of time, look for gasoline to average nationally at $2.05 . . . that's if we're lucky. Unfortunately, in the coming months, it may be more likely that we'll see gas in the $2.25 range. And, that the price could sky well beyond two and a quarter per gallon is well within the realm of possibility.

Bottom line: if we long to continue shelling out about the amounts that we do right now for gasoline, pray for oil to retreat to the low 40's. That looks like our best case. It's hard to imagine any scenario for motor fuel outlays to lessen significantly any time in the near term. It's far easier to envision them schlepping higher.

You can peruse a brief background and explanation of my methodology for the OGRS by proceeding to this post.

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