Does $20 Oil Mean $1 Gas?

A forecast from Citigroup analysts that crude could fall as low as $20 a barrel made for eye-popping headlines. Since oil prices are most often tied to gasoline prices as the general public views them, the next calculation has to be whether $1 gas prices are far behind.

The Citi analysis is based on the price of West Texas Intermediate (WTI), which currently trades at $53 a barrel. The forecast presumes a perfect storm that includes the assumption that buyers squirrel away millions of barrels for future use and the largest producers, OPEC especially, ignore falling prices and pump crude as quickly as they can. As is always the case, fracking will press prices ever lower.

According to GasBuddy, the average price of a gallon of regular in the United States is $2.19, compared to $2.06 a week ago. The data suggest that gas prices may have bottomed. However, based on Citi’s reasoning, the bottom is false. Market forces are about to push prices much lower, as was the case from last year until recently. The average price of a gallon of gas a year ago was $3.29.

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