Predict Tomorrow's Gas Prices Today
Seven Trends You Must Know
You can easily predict tomorrow's gas prices if you learn two things. First, you need to understand the seven general trends that impact them. That will give you the background to understand general price moves. Second, you should know how gas and oil futures contracts work. These give you the price movements that will occur over the next few days and weeks.
The Seven Predictable Trends That Affect Gas Prices
Gas prices are highly volatile, not just because driver have few other choices, but also because so many events affect them. Before you can get into the nitty-gritty of predicting tomorrow's gas prices, you need to be aware of the underlying trends. They will help you predict both seasonal changes and sudden spikes in gas prices.
First, gas prices typically rise in the spring and summer and drop in the fall and winter. That's because demand for gas increases during the summer as most American families go on road trips. It's also because gas formulations include more ethanol in the summer to reduce the effects of global warming. As a result, refineries start gearing up for summer gas production in the spring. They close for needed maintenance and to switch over their processes to include the higher levels of ethanol. Although shut-downs are publicized in advance, gas prices can rise if too much supply is cut off.
Prices usually drop in the fall as demand drops.
Second, gas prices rise after hurricanes or other natural disasters. That's because most refineries border the Gulf of Mexico. If they are damaged, gas distribution is compromised. Right after Hurricane Katrina, gas prices spiked to nearly $5 a gallon.
Third, major threats to the world's oil supply can drive up prices of both oil and gas. This risk usually starts in the Middle East, which supplies most of the world's oil. In February 2012, Iran threatened to close the Straits of Hormuz, through which 20 percent of the world's oil passes. Israel and the U.S. rattled their sabers in response, driving gas prices to $3.87 a gallon by March.
Fourth, commodities traders can create a price bubble through sheer speculation. That happened during the 2008 financial crisis. When the stock market crashed, traders turned to oil futures to make money. Even though demand was falling and supply was rising, oil prices rose to a record $145 a barrel. It soon sent gas prices to $4 a gallon.
Fifth, gas prices vary regionally depending on state taxes and regional formulations. For example, California prices are usually the highest, thanks to taxes at $.66 a gallon. When there is a shortage in one area, it's difficult to use gas from another region because there are 18 different formulations. That's one reason a supply shortage in California drove prices to nearly $5 a gallon in late 2012 while prices in the rest of the country were a dollar lower.
Sixth, the value of the dollar can affect oil and gas prices. That's because oil contracts are priced only in dollars. As the value of the dollar drops, the price of oil rises. That was the case until 2014 when the dollar started getting stronger. Oil prices fell through the early part of 2016.
Last and also least is the trend that one day the world will run out of oil. But that's such a long-term trend that it isn't a factor in any price changes so far. That's because there is still plenty of reserves in Saudi Arabia, the primary source of today's oil.
A good place to find out about these trends is the Energy Information Agency, the Federal agency responsible for analyzing and reporting the country's energy data. Each week, it updates the Short Term Energy Outlook. It reports on current oil and gas prices. It also tells you if any of the seven trends are currently affecting them. For example, it lets you know when refineries are down or if there are other distribution problems with either gas or oil.
The EIA won't tell you what the gas price will be tomorrow or next week, but it does forecast average prices for the next year. There is a wealth of data on this site that gives historical gas prices, so you can drill down to look at trends. See Customizable Tables.
Gasoline and Oil Futures Contracts
To get a closer look at future gas prices, go to the commodities markets. There, traders bid on gas delivery for the next month. That's called a futures contract, and it's an agreement between a buyer who will use the gas and a seller. The buyer can be a gas distribution company, a transportation company, or large corporation. The seller is usually a refinery.
However, many commodities futures traders have no intention of taking ownership of the gasoline. Instead, they are looking to make a profit on the trade. They buy now, hoping that the actual price will rise so they can sell the contract at a profit. These traders are responsible for a lot of the volatility in gas prices. They anticipate and then exaggerate actual supply and demand trends.
The commodity is called the New York Harbor RBOB Gasoline futures contract. The daily charts show what traders are bidding and closing on contracts for each month in the future. There is more volume for delivery dates closer to the present, so these prices are more reliable. Because so many things can change to affect the price of oil and gas, these charts change daily. See Daily Settlements for RBOB Futures.
You can also trade gas futures directly through CME. It's another way to profit directly from your predictions of tomorrow's gas prices.
Another indicator of tomorrow's gas prices is the future contracts prices for Brent Crude Oil Futures. It usually takes about six weeks before changes in oil prices show up at the pump. For the most part, gas price futures contracts will follow oil price contracts. Occasionally oil prices will be low, but gas prices spike due to distribution failures from natural disasters or seasonal plant shutdowns.
Look at both charts to get confirmation, and to understand what is happening to affect gas prices. Armed with this knowledge, you will able to predict tomorrow's gas prices today. (Source: "Gas Futures". "What Affects Fuel Pricing," Chevron. "Gas Price Update," Energy Information Administration.)