Is this the end of $3 a gallon?
JEREMY HOBSON: Now let’s get to oil and gas prices. They’re down from their peak. But Goldman Sachs said today that oil prices will jump another 20 percent or so in the next 12 months.
Juli Niemann is an analyst with Smith Moore and Company. She’s with us live from St. Louis as she is every Tuesday. Good morning Juli.
JULI NIEMANN: Good morning Jeremy.
NIEMANN: Well first of all, let’s just set the scene. Oil prices are down from their peak. Gas prices are down from their peak — 11 cents down last week. Why the drop after that big run-up in prices?
NIEMANN: Well, it’s truly the laws of supply and demand. We have plenty of supply, and we have flat demand. The only reason we got to these astronomic prices was because of speculation. In fact the president of Exxon said if prices only reflected supply and demand, we’d have been at $70 a barrel. So speculation drove it up to those levels.
HOBSON: And what about the Goldman Sachs prediction this morning that oil prices and probably therefore gas prices will go back up by about 20 percent in the next 12 months?
NIEMANN: Well, they’re assuming very strong global growth. Significant pick up in demand. And we’re looking at across the globe. We’re not all driving electric cars yet, so you’re going to see significant pick up as we continue to recover very slowly here.
HOBSON: Well, if we’re going to see significant pickup, Juli, have we reached the end of the $3 a gallon gasoline?
NIEMANN: Well, we could plunge back down to a $1.19 a gallon, but that would take another huge honking recession/depression. And that would bring the global economy to its knees. That’s a measure that’s just a tad draconian.
HOBSON: So $4 a gallon is what we’re going to be paying going forward.
NIEMANN: We could very well, with strong demand and the fact is we still don’t have fuel efficient cars. We don’t have a transportation infrastructure that helps out yet. It’s going to take that to keep it under control.
HOBSON: Juli Niemann, analyst with Smith Moore and Company, thanks so much as always.
NIEMANN: You bet.
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