Where Will Gasoline Prices Go From Here?

by Serge Berger | May 31, 2013 11:08 am

With Memorial Day behind us, the U.S. summer driving season has officially kicked off. Surprisingly, though, prices at the pump have not yet moved much higher.

A gallon of U.S. regular gasoline cost a national average of $3.603 at the beginning of May, ticking higher by just about 4 cents to $3.645 today. While this lack of a gasoline price spike is good for the consumer, one does have to wonder whether gas prices could rise as the economic recovery continues (if ever so moderately).

Let’s take a look at the charts and make a few predictions about the price of crude oil, which is a big driver of the price of gasoline.

us gasoline prices multi year chart 300x235 Where Will Gasoline Prices Go From Here?
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To start off, see the chart at right from the U.S. Energy Information Administration. The chart shows prices of retail gasoline and diesel from 1992 to the present. While gasoline prices dropped sharply in 2008 as the financial crisis hit, by May 2011 they were again fairly close to the levels from June 2008.

USO multi year chart 300x158 Where Will Gasoline Prices Go From Here?
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Comparing the above chart of gasoline prices to the one of light crude oil (at right), the disparity becomes quite obvious. Light crude oil, as here represented by the U.S. Oil Fund (USO[1]), cascaded lower from its 2008 top and found a bottom in early 2009 as the broader U.S. stock market capitulated. Unlike gasoline prices, however, crude oil did not rebound as sharply, and continues to trade in a range. While the USO somewhat distorts the difference in rebound between gasoline prices and crude oil, it does show that oil prices rebounded less.

uso daily chart 300x222 Where Will Gasoline Prices Go From Here?
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For those looking for a level in USO that could signal an acceleration higher for light crude — and thus for U.S. gasoline prices — consider the area around $34 to $34.50. A move above this area would constitute a break of the downtrend since September 2012 and the trigger of an inverse head-and-shoulders pattern, which is marked by the blue circles on the chart.

As a side note, please be aware that in a gallon of U.S. regular gasoline, the consumer only pays about 65% for the oil. The rest of the price (35%) is made up of refining and distribution costs and taxes.

Serge Berger is the head trader and investment strategist for The Steady Trader[2]. Sign up for his free weekly newsletter here[3].

Endnotes:
  1. USO: http://studio-5.financialcontent.com/investplace/quote?Symbol=USO
  2. The Steady Trader: http://thesteadytrader.com/
  3. free weekly newsletter here: http://forms.aweber.com/form/42/1636996642.htm

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