What Next for Gas Prices in U.

Where are oil prices headed in 2016
and what might that mean for U.S.
gasoline prices? How long will the
national average price of gas
continue to decline? How low can it
go and how long will it stay there?
What happens if U.S. demand should
decline and our economy weakens?
Some suggest that's a possibility
after the Federal Reserve earlier this
month raised interest rates for the
first time in nearly a decade.
NelsonSchwartz of the New York
Times warned that "European central
bankers raised rates twice in 2011,
killing off a nascent recovery and
plunging the eurozone into a double-
dip recession that it is still struggling
to overcome."

Sometimes there are more questions
than answers, but that shouldn't
alarm anyone; it's merely a
confirmation of change as the only
constant. While analysts debate daily
about whether crude oil has reached
a bottom (at $34) or may slip down
to the $20s there's little
disagreement that the global glut is
unlikely to diminish significantly in
the near term.
And putting an exclamation mark on
that viewpoint is the unseasonably
warm weather which reduces
demand for distillate (heating oil)
fuel, erasing potential upward
pressure on West Texas Intermediate
and Brent oil. Altogether that means
lower crude and very little pressure
on retail gas prices in the U.S.,
excluding our own self-imposed price
acceleration from EPA mandates
each spring.
But this coming year we have a wild
card that has been missing for 40
years. Oil exports from the U.S. In
case you missed it, the budget bill
approved by Congress last week
included an end to the 40-year ban
on U.S. oil exports.

While some might think that means
even more oil expanding the global
pool, the current "compression" of
global and North American oil prices
gives little rationale for U.S. exports.
If we were looking at a gap between
Brent and WTI of $20 or $25 per
barrel, that would provide plenty of
incentive for exports from North
America. But, as Tom Kloza, global
head of energy analysis for the Oil
Price Information Service, says,
"Simply put, when global prices don't
exceed U.S. numbers by $3 per
barrel or more, the economics don't
make sense."
Looking ahead, it will take sharply
higher crude oil prices to prompt a
significant volume of U.S. exports.
While that cannot be entirely ruled
out, it would be wise in the meantime
to pay close attention to the spread
between WTI and Brent. And it may
not hurt to keep an eye on currency
fluctuations too.