Trump Forecasts Low Gasoline Prices In 2019, But Is This Realistic?

President Donald Trump has predicted that gasoline prices for 2019 could go even lower. This is a bold statement considering that the average national price for gasoline closed out 2018 quite low, at $2.24 per gallon.

Of course, many Americans are actually finding prices significantly lower than the average. According to GasBuddy, 42% of gas stations in the U.S. are selling gasoline for under $2 per gallon.

The President also took credit for these lower gasoline prices in a second tweet that read “Do you think it’s just luck that gas prices are so low, and falling? Low gas prices are like another Tax Cut!” This may have been a reference to pressure the President exerted on OPEC (and specifically Saudi Arabia) during the summer and fall of 2018 to produce more oil when oil prices neared the $80 per barrel mark. Increased production from Saudi Arabia, the UAE, Iraq and Russia did help bring oil prices down, but the Trump administration’s decision to award exemptions to some importers of Iranian oil as new sanctions against Iran took effect in early November also played a role in sending oil prices, and therefore gasoline prices, plunging down.

The real question is whether today's low gasoline prices are likely to remain, or head lower, for the rest of 2019.

Seasonally, gasoline prices are at their lowest during the winter months, so, even if all other conditions remain the same, the low prices American drivers are seeing now will likely rise as we head into the spring and summer months.

However, all other conditions are not likely to remain the same. The price of oil is the most significant determinant of gasoline prices. The price of oil dropped in 2018 - a whopping 24% from January 1, 2018. The price of a barrel of the American benchmark oil closed out the year at only $45 per barrel, down from a high of $76 per barrel in October. Oil prices are likely to remain low for at least the first quarter of 2019. But come April, 1.2 million barrel per day production cuts from OPEC and Russia will start to impact oil supply and the U.S. will likely end the exemptions for importing Iranian oil. Oil prices could start to rise in the spring.

On the other side of the equation, however, is America’s vibrant shale oil industry. American oil production hit record highs in 2018 and the EIA forecasts even higher production in 2019. Just about the only things that could stop the shale oil industry juggernaut are prolonged low prices combined with a decline in investment and credit from Wall Street. Global oil demand is also forecasted to grow at a slower rate in 2019, which, if true, could help keep prices low.

For comparison, the President's prediction could be seen as inconsistent with GasBuddy's 2019 forecast. GasBuddy's analysts say that gasoline prices in the U.S. will average $2.70 in 2019, which is almost 50 cents higher than today. However, $2.70 would still be 3 cents lower than the national average over the course of 2018.

Are low gasoline prices here to stay for 2019? Will the President’s prediction prove correct? Consumers should not expect a cash windfall, but relatively low gasoline prices are a good possibility.

Source: Forbes
Date: Jan 2, 2019