By Jim Brown
It was a late Christmas gift for Island motorists – another five cent reduction at the pumps when self-serve regular unleaded gas fell to 90.2 cents a litre on Jan 15. Many motorists probably felt the decline should have been steeper, given WTI crude hit a 12-year low that day, falling to just $29.42 US a barrel. Exactly a year earlier, with WTI crude hovering around $45 US a barrel, PEI’s Island Regulatory and Appeals Commission lowered prices for self-serve regular unleaded gas to just 88.7 cents.
But I think gasoline prices won’t fall much further even with the Iran nuclear deal, signed during the summer and kicking in on Saturday, Jan 16. Sanctions were lifted that day, bringing tens of billions of dollars back into the Iranian economy and opening already depressed global markets to millions of barrels more of oil a year. That should send oil prices deep into the 20s or even lower, shouldn’t it?
I’m guessing no for the simple reason all the bad news is out there. In fact, much of the recent sharp decline in oil prices has come in anticipation of the lifting of sanctions and the opening of Iran’s rusty oil spigots.
This may sound strange, but let’s compare this outcome to someone finally getting the layoff notice they had dreaded but knew was coming for a long time. For many people it can seem almost like a relief. The actual layoff means they can finally embark on a new direction in their life. They aren’t paralyzed by fear and indecision.
That is basic human nature.
So the world is vastly oversupplied and the Chinese economy is in a deepening slump and every industrialized country is facing sluggish growth, or worse. It also doesn’t matter – because it’s psychology and raw emotions that drive markets, not fundamentals. There was no reason for oil to hit $140 a barrel several years ago. Supplies weren’t crimped that much. There was actually increasing production from Russia and other oil producing heavyweights. So why did it shoot up so far, so fast? It’s quite simple – traders caused the spike. They believed they had to get in and catch the merry-go-round before every last seat was taken. They saw no reason not to be bulls.
Then over the past year the skies darkened. There was not a hint of light anywhere on the horizon. Oil producing nations, including Canada, were faced with the grim reality of an oil super-glut.
Things changed dramatically over the weekend. Iran is back in the oil market and the world didn’t end. And, in fact, there is every reason to believe output won’t come close to what many so-called petroleum experts had feared since Iran has little to gain by widening the spigots.
This is an extreme contrarian call, but I believe oil won’t be long for the $30 level. In fact, I wouldn’t be surprised if stocks of oil companies and markets in general rallied strongly over the next few days. And I also believe before too much longer we will see the end of sub-dollar gasoline in PEI and elsewhere. Enjoy it while you can. The good times are about to end for motorists.
By Jim Brown
Funny, isn’t it, how gasoline prices work. Last year, on Jan 15, 2015, the price of self-serve regular unleaded gas at the pumps on PEI after a scheduled IRAC price adjustment was 88.7 cents a litre. On Friday, Jan 15, of this year, IRAC lowered prices by five cents for regular unleaded gas to 90.2 cents a litre. Meanwhile, WTI crude has plunged below $30 a barrel US, the lowest price since 2003. When gasoline was 88.7 cents a litre WTI was much higher, trading above $45 US a barrel. I can’t be the only one who is confused about how PEI’s regulated energy system operates.
By Jim Brown
Every year after Jan 1 I find myself grappling with “Happy New Year” etiquette and I have yet to find a satisfactory answer. When should we stop saying that to strangers or friends? I did an informal survey of people I know and this is what they told me: First full week after New Year’s, exactly halfway through January, first day of February, when all the Christmas trees disappear from ditches, when Xmas decorations are taken down everywhere (perhaps sometime in July or August?) or my personal favorite – when all the eggnog is gone from the house.