SAN FRANCISCO -- Talk of $200-per-barrel oil prices by the end of the year has quietly faded away and been replaced by forecasts for $100. Meanwhile, gasoline prices on the street have been slower to fall.
It would be easy to say that crude oil has failed to meet market expectations, and a bear market may be in place. But the harder part is to figure out how long and to what point oil prices will fall.
Projections earlier this year for oil prices as high as $200 fell flat, with prices unable to even reach $150.
"Now analysts are lining up to say the top is in," Sean Brodrick, [image-nocss] a natural resources analyst at MoneyandMarkets.com, said in a MarketWatch report. "I've been saying all along that volatility is the name of the game in oil this year."
He expects prices to move lower in the short term: $120, $110 or even $100 "if we're really lucky."
It'll probably be a rather slow drop, however. "The air will escape the balloon more slowly than the bubble was inflated," Anthony Sabino, a professor of law at St. John's University, said in the same report.
"That's just a function of the hysteria of the market that inflated the bubble in the first place," said Sabino, whose legal practice includes oil and gas law. "The market is afraid to let go of its fear."
Crude futures reached a record intraday level of $147.27 on July 11 in Globex electronic trading. A year ago, prices were trading at $72, and five years ago, they were at $32.
Since mid-July, prices have dropped from their record level by almost 19%, or around $27, to close at $120.02 on Thursday. They dropped $16 in the month of July alone.
"The month of July saw oil hit an all-time high but at the same time, saw the biggest dollar value pullback in the history of the oil market," said Phil Flynn, a vice president at Alaron Trading.
Still, the recent pullback in oil prices should have been expected "given the sizable move towards the upside (with no major correction) in such a relatively short period of time," said Balarie.
Prices are likely to go "downhill from here, but with bumps on the road," said Michael Lynch, president of Strategic Energy & Economic Research. He expects to see oil prices at $100 by the end of September—and maybe even $80 by the year's end.
"I would bet on $100 before I bet on $200" by the end of the year, said Tom Kloza, chief oil analyst at the Oil Price Information Service. "That underscores a lack of confidence in the U.S. and European economies."
But even as oil markets are cooling off, down about 20% from the record high set in July—gasoline prices have only fallen about 5.5% since then, according to a report in The Wall Street Journal.
Academics, who like most other people have cars and fill them up, have long wondered why gas prices seem to rise faster than they fall. They 've spent a good 20 years trying to back up their feeling with hard data.
Most studies conclude that yes—gasoline prices are quick to rise and slower to fall. That holds true seemingly everywhere—from California to D.C. suburbs to the Philippines. (One glaring exception: the U.S. government 's Energy Information Administration, which concluded five years ago that prices rise and fall at the same rate.) The phenomenon even has a name: “rockets and feathers,” describing the speedy ascent and the leisurely decline. The bigger question is: who 's to blame? You are, in a way.
The theory of the day to explain sluggish declines at gas pumps points squarely at consumer behavior, as the folks at Knowledge Problem pointed out recently. When prices are rising, everybody drives all over town to shave a cent off each gallon. Once oil and gas prices start to fall, people get thrilled by $3.88 gas, and fill up at the corner station. Since there 's less comparison shopping, gas stations don 't have to change prices as often.
Granted, in the past year, oil prices shot up so far, so fast, gasoline prices couldn 't keep pace, squeezing refining margins. So analysts have warned that gas prices would be slower coming back down, as refiners catch their breath. But gas prices have been “sticky” for decades, so it can 't all be chalked up to refiners trying to cushion margins.
So what 's the remedy? Not congressional action against “price gouging,” or any other top-down fix, apparently, according to the WSJ report. The most effective way to make the retail gasoline market work better is to patronize more mom-and-pop gas stations, rather than huge branded chains. The more small, independent operators there are, the quicker gasoline prices are likely to fall in lockstep with oil, several researchers have found. That 's apparently because independent operators buy their gas at “rack rates” rather than from an upstream oil-and-gas giant, the report states.Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.