Forget About Gas At $2 – It’s Going Toward $1 / Gallon

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Jan 11 2016
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Gas at US$2 was what people were screaming and hoping for last year. Today, the average price of gasoline in the United States is below US$2 a gallon, or US$1.967 / gallon to be precise. While some Americans, depending on their geographical location, are rejoicing over the lower gasoline price, some are betting and praying for even more – a mind-boggling 1-buck a gallon.


The lowest reported regular gas price in the last 48-hours was US$1.39 a gallon in Oklahoma City. That roughly translates to US$0.3677 a litre (£.2533 a litre; RM1.6222 a litre). This is based on crude price of US$33.04. But the latest crude WTI and Brent show prices of below US$33 a barrel.

Lowest Regular Gas Prices - Oklahoma - 11Jan2016

We bet our bottom dollar that it would drop to below US$30 a barrel before President Obama’s next golf session. On paper it seems like a big deal for crude to plunge another 10%. However, considering it dropped from US$38 on the first trading day of the New Year to today’s US$33, which was about 13%, it’s absolutely possible to see it breaching US$20+ level.


Therefore, it’s not something bizarre to see consumers happily pumping gasoline at US$1 a gallon (US$0.2645 / litre). When that happens, it should be celebrated with some mini fireworks considering that last time such happy moment occurred was in 1999. Yes, that was 16-years ago when some of you were not even born yet.

Crude Oil WTI Chart - 11Jan2016 - Below US Dollar 33Crude Oil Brent Chart - 11Jan2016 - Below US Dollar 33

At US$1 a gallon, it would send shivers down oil-producing countries’ spine such as Malaysia, Saudi Arabia, Venezuela, Nigeria, Russia and whatnot; not because they would have to balance their annual budget (again) but these governments would be scratching their heads adjusting their gasoline or petrol prices to the benefit of their people.


At US$1 a gallon, it would translate to US$0.2645 a litre (or £0.1821 / litre; RM1.1663 / litre). Already, OPEC kingpin Saudi Arabia, fighting a losing battle against U.S. shale industry, has raised domestic power, water and fuel prices, and trimmed government spending for 2016. The people of Saudis are paying higher price to drive this year.

Saudi Arabian pumping gasoline before price increaseSaudi Arabia Oil Production - Oil on Currency

The price of lower-grade petrol (Octane 91, RON-91) for a litre was increased to 0.75 riyals (US$0.20; £0.14; RM0.88) from 0.45 riyals – a 66% rise – while the price of higher-grade unleaded petrol (Octane 95, RON-95) was hiked to 0.90 riyals (US$0.24; £0.17; RM1.06) from 0.60 riyals – a hike of 50%.


The fact that the Government of Saudi chose to cut various subsidies – fuel, electricity, water and sewage, diesel and kerosene – and even categorizing who among the civilian and military officials can travel on first class or economy goes to show the OPEC will keep pumping, regardless of global crude oil prices in order to protect their market share.

Shale Oil Industry - fine grained sedimentary rockTheo T Oil Tanker Sailing With US Export Oil To Vitol Group

As United States becomes the world’s latest oil exporter after 40-years, it adds pressure on oil price to go nowhere but south. Unlike Saudi, the oil industry in America depends on “survival of the fittest” hence while some shale companies may go bust, others who can bring down their cost of producing will continue pumping. This is the part that Saudi didn’t understand.


Of course, when the OPEC decided to prioritize market share instead of oil prices, it probably didn’t take into consideration about China’s economy. As the Chinese financial and economic muscles are slowing down, the demand for the black gold is lesser. It’s a big deal how much China drinks oil every day because it now tops the list of oil importers, ahead of the U.S.

China Stock Market Collapse - Anxiety Syndrome

As we move forward, the odds grow each day that gasoline or petrol will be US$1 a gallon, or RM1.17 a litre. And if China somehow crashes to a hard landing, certain areas especially the states of Alabama, Arkansas, Missouri, Oklahoma and South Caroline could realize gas at 1-buck per gallon before the Chinese could pack for their Chinese Lunar Year.


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