Gas Prices

In April, 2008, Ed Wallace wrote:

“Gasoline reserves on hand are at the highest levels since the early 1990s… In fact, average gasoline reserves on hand have risen since this past October, while oil reserves in this country have gone up virtually every week this year…” (via There Is No Gas Shortage – BusinessWeek.)

He cited statistics showing demand was down. Yet gas prices continued to rise. Wallace has continued to chronicle this strange phenomenon on his weekly radio broadcast via KLIF in Ft. Worth, Texas.

Demand continues to be down, while supplies are up. Today, The Financial Times offer’s an interesting article (which I think parallel’s Wallace’s analysis):

“Market price signals, however, have an uncanny ability to change long-term supply and demand dynamics. Indeed, the high and rising price of oil from 2004/05 onwards, but most particularly in 2008, would appear to have delivered a very clear and identifiable supply response. Using conservative assumptions we expect that the future supply of oil will increase by approximately 9-10m barrels per day by 2017. That equates to a 10-12 per cent increase in global production capacity. Importantly it will more than absorb our estimated 5m bpd increase in Chinese demand, the biggest single driver of demand growth, over that timeframe.” (via FT.com / UK – The coming oil glut that will force prices to drop sharply.)

To be accurate, Wallace also points out in another Business Week column that oil prices and gas prices are only indirectly correlated, because they are influenced by different markets/buyers. Oil is more driven by speculators, gas by gas station owners, wholesalers, etc.

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