Where gasoline and oil may be headed

Posted on April 22, 2006 , Filed Under Stocks

I caught this chart from a blog called The Big Picture that discusses how far commodities can run. The original source of the chart is located at chartoftheday.com. It’s interesting to contrast the historical price of gasoline compared to today’s prices. What we see is an over 20 year gap since the last time gasoline passed $3.00. The non-inflation adjusted high of gasoline is $2.87, set in March, 1981. If you believe that all things are destined to set new highs, until replacement or advancement occurs, we should see gasoline prices soar past the 1981 high. Although difficult to gauge with hard numbers, media exposure and the distribution of news is many times better than it was in the 1980’s. Greater public exposure to news, compounds the speculative effect of turbulent global events such as terrorist activities or natural disasters.

Here is a quote from this AP press release

“You put all these headlines together, you see the situation is getting charged up and getting out of control. That’s why oil traders and speculators are having a field day — this is exactly the kind of environment that speculators want to operate in,” said Oppenheimer & Co. oil analyst Fadel Gheit.

Light, sweet crude for June delivery rose $1.48 to settle at a record $75.17 a barrel Friday on the New York Mercantile Exchange, after peaking at an all-time trading high of $75.35. The May contract, which expired Thursday, had settled at $71.95 on Thursday.

Accounting for inflation, prices are still about 20 percent below the records reached in 1981, when supplies became tight after a revolution in Iran and a war between Iraq and Iran.

If tensions in Iraq persist, I believe there is a chance for crude oil to break $80 this year and for gasoline prices to hit $4 by early 2007.