The most optimistic prediction for gas prices by 2014 is $4.75/mbtu, with the median analyst forecast about $4.30, according to Bloomberg. I believe the glut of gas will end much earlier, by late 2013. Here is why.
1. The large U.S. gas producers, like Chesapeake and ExxonMobil have already drastically cut drilling and new well development.
2. Many convertible factories, businesses, and commercial facilities that can switch fuels have switched to natural gas in the past two years. This will increase demand in 2013.
3. U.S. Electric utilities are consuming record volumes of gas. Consumption will climb again in 2013.
4. Its statistically unlikely the northeast U.S. will have another winter as mild as 2011/2012.
5. Global economy improvements, while modest, will still make 2013 the best year for growth since 2008.
U.S. gasoline prices are back in the news, as prices head toward $4 per gallon, and no indication they will stop there. With reduced demand in the winter months, it seems that investors and speculators are adding a high risk premium to world oil prices. News programs speculate on what the government or President should do.
Angst at the pump
Don’t wait for the government! Here are 5 things you can do now.
1. Form a carpool. You just doubled your mileage.
2. Buy a hybrid, diesel or 4 cylinder vehicle, new or used. You’ll get to work in the same amount of time. If everyone gave up their V8s, fuel consumption would drop over 50% and gasoline prices would plummet.
3. Buy your gasoline from Sinclair or similar U.S. refiners who own domestic oil. Your dollars get recirculated in the U.S. economy and encourage domestic investment in more capacity, eventually lowering prices.
4. Get a flex-fuel conversion kit. CNG or ethanol can save money now and when gas prices drop, you easily switch back. This is already the standard in places like Brazil.
5. Public transportation. Don’t buy any gasoline at all!
Speculators represent 2/3 of the trading in oil futures. Right now, they don’t think you are ready to change your gas-guzzling, ride-by-myself-in-my-SUV habit. As soon as you show them differently, they will trade oil short, as fast as they have driven up prices.