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By New_Deal_democrat February 2, 2015 9:32 am
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US gas prices have (probably) bottomed

A little over three weeks ago I wrote that
http://bonddad.blogspot.com/2015/01/the-bottom-in-gas-prices-is-close.html
the bottom in gas prices was close.  The primary reason was seasonality: as shown in the graph below  in 8 of the last 10 years, gas prices have bottomed between mid November and early February:

Since the actual dates aren't obvious in the above graph, here's the list:

January 2005
December 2005
February 2007
December 2008
December 2011
December 2012
November 2013

Typically, by mid-February, refineries are changing over to their more expensive warm weather blend, and driving miles begins to increase.   Gas prices - and driving - peak sometime between the end of April and the Fourth of July.

In addition to seasonality, I have been looking for a sustained increase in demand.  In that regard, as shown in the below graph of Americans' gas usage, look what has happened to driving (from the E.I.A.):

In the last several weeks, it has been up about 8% or more YoY!

I have also been looking for a sustained period of near stability in gas and oil prices, where there has been a close higher than a close two weeks prior.

Here is GasBuddy's graph of gas prices for the last three months:

It looks like the bottom was $2.02 a gallon on January 28.  Gas prices have been between that range and $2.08 for the last 2 1/2 weeks. Their present price of $2.06 is where they were two weeks ago.

This is the longest period of stability since early September.

In both 1986 and 2008, when gas prices have nosedived, they have made a bottom within 7 months.  The 2008 decline is shown in the first graph above.  Here's the 1986 decline:

Last year, gas prices started meaningfully declining in July, 7 months ago.

Here's the price of WTI crude for the last 3 months:

Oil has just been a high as $48.24/barrel, higher than it was as far back as January 12. This is also the longest period of stability since the beginning of autumn.

My thought process in looking at Oil prices is similar to that which enabled me to call the bottom of housing sales in spring 2009.  The market was plummeting so fast that it had to make a bottom soon -- or else housing in 2009, or gas in 2015, would be given away for free in a matter of months!  It was literally running out of room to fall.  At very least the decline would have to decline to a very slow dip. 

And finally, this year is the market really in as bad shape as it in December 2008, in the midst of the steepest economic downturn in 70 years?  There the bottom was $1.61/gallon.

So in my piece three weeks ago I concluded:

"Since it takes a week or two for prices to filter through to the pump, it looks likely that there will be a further decline to about $2/gallon by late January.  The seasonal low is normally set by that time."

It looks like that is exactly what came to pass.  In short, the odds are quite good that we saw the bottom of the plunge in Oil in gas prices late last week, at $.202/gallon and $44/barrel.  If gas prices increase seasonally as they have in 8 of the last 10 years, we should see a quick rebound in the next month to about $2.30, and a spring or summer high of about $3/gallon +$.20/-$.10. 

So we can move on from reading about why we are DOOOOMED because of cliff-diving commodity prices, to reading about why we are DOOOOMED because they are allegedly skyrocketing.

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