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    $1 per Gallon Gas? Gulf Oil CEO Says It May Be

    Petrowski and others expect crude prices will continue to plummet in 2009.

    NEWTON, Mass. -- One day after a petroleum industry expert said oil prices will likely bottom out at $40 to $50 per barrel next year, Gulf Oil and Cumberland Farms CEO Joe Petrowski said the price of oil could sink to as low as $20 per barrel and pump prices may plummet to $1 per gallon by early next year.

    Simultaneously, on Thursday an energy analyst for Merrill Lynch predicted crude oil prices could plummet below $25 a barrel and gas prices at the pump could drop to below $1 a gallon if the global recession spreads to China.

    "The oil market is a manic-depressive market. It tends to over shoot," said Petrowski told WCVB-TV in Boston. "The market overshot last summer on the high side. Oil should never should have gone to $147, but it did and it can."

    Now Petrowski believes the slide in oil prices will continue and overshoot on the low side. "There is a better than 25-percent probability that we'll see oil go as low as $1 a gallon sometime after the first of the year," he said.

    Dramatically lower gas prices would essentially be similar to a rebate check for consumers, he said. The drop may even help ease the country out of the recession.

    "The price of oil has a tremendous impact on discretionary consumer spending. I think it hurt us tremendously during July and August," Petrowski said. That's when pain at the pump prompted motorists to cut back their travel by 9 percent.

    "But long term, we need to have oil prices at an equilibrium price that will encourage new production, will encourage efficiency and will encourage alternative sources," Petrowski said, who added he hopes the motivation to create alternative energy sources will not be lost if pump prices continue to fall.

    Oil prices could temporarily drop below $25 per gallon if the global recession touches China, according to Merrill Lynch Commodity Strategist Francisco Blanch.

    "In the short-run, global oil demand growth will likely take a further beating as banks continue to cut credit to consumers and corporations," Blanch told Bloomberg News.

    In October, when oil was trading for around $100 a barrel, Merrill predicted prices could drop to $50. Oil fell Friday to $43.64 a barrel in electronic trading.

    The last time crude fell below $25 a barrel was November 2002.

    Meanwhile, in a Webcast Wednesday, Brian Milner, refined fuels editor for DTN, a provider of information for a variety of industries including agriculture, refined fuels, commodity trading and other weather-sensitive markets, acknowledged crude prices could bottom out in the $40 per barrel range, but would likely climb into the $50 per barrel area by summer.

    "I am an optimist," said Milner. "I am going by the economists who say the economy will start to get better by June of ’09. If that happens, I don’t think oil can stay as low as $40 for too long."

    However, longer term, Milner noted Federal energy policies prompting greater efficiency and mandating the use of ethanol will limit the upside of oil prices, even as demand grows in other parts of the world, such as India and the Middle East.

    Milner said the rapid decline in oil prices from an all time high in July is unprecedented, and "has less to due with oil fundamentals than with the economy." Milner rattled off several economic factors that have shaken the oil markets: manufacturing activity hit a 26-year low in October, unemployment is at a 26-year high. The bankruptcies of several freight hauling companies have hurt diesel demand, and consumers’ miles-driven declined in 2008 after flattening the last couple of years.

    He did note, though, that special events, like terrorism, could cause a spike in the oil markets.

    "The damage to the economy by the financial turmoil is much bigger than the market initially thought," Tetsu Emori, commodity markets fund manager at ASTMAZ Futures Co. in Tokyo, told FoxNews.com. "The economic data now is much worse than what we expected a few months ago."

    Oil prices have fallen about 70 percent since peaking at $147.27 in July.

    Dismal economic data continued Thursday in the U.S., with the government reporting the number of people continuing to claim unemployment benefits last week reached 4.09 million, the highest level since December 1982, while the proportion of workers receiving benefits matched a level reached 16 years ago, in September 1992.

    Factory orders plunged a bigger-than-expected 5.1 percent in October. It was the largest decrease since an 8.5 percent fall in July 2000.

    For video of Petrowski’s interview, click here. To read CSNews Editor-in-Chief Don Longo's take on Petrowski's view, or to submit your own thoughts, visit the Spare Change blog by clicking here.

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