Oil may plunge by $20 a barrel if tensions ease in Libya and Middle Eastern countries, Stephen Schork, president of the Schork Group Inc., a consulting firm in Villanova, Pennsylvania, said on Bloomberg Television’s “Inside Track.”
U.S. supplies are at or above their historical ranges for this time of the season and oil has spiked $20 because of concern strife will spread, according to Schork, who correctly predicted on July 24, 2008, that oil prices would fall below $100 a barrel in the third quarter of that year.
“We have a hedge-fund community, a Wall Street community that is way over-extended on their bets on rising oil prices,” said Schork. “Speculators on Wall Street now own more barrels of sweet oil than are actually sitting in the Strategic Petroleum Reserves. They own twice as many futures contracts in gasoline than there are at the Nymex delivery hub in New York Harbor.”
There are 726.5 million barrels of oil in the U.S. Strategic Petroleum Reserve, according to the Energy Department. About 58.5 million barrels of gasoline were stored along the East Coast, which includes the New York Harbor delivery point for contracts traded on the New York Mercantile Exchange, in the week ended March 25, department data show.
Elasticity to Wane
Regular gasoline at the pump, averaged nationwide, increased 2.3 cents to $3.685 a gallon yesterday, AAA said on its website. That’s the highest price since Sept. 25, 2008.
Fuel prices at the pump may rise 20 cents to 25 cents this summer, according to Schork.
“Consumers just simply can’t pay any more,” Schork said. “We are at the demand point where elasticity is certainly going to wane. Americans cannot afford that. They will alter their discretionary behavior when it comes to gasoline.”
Gasoline demand, as measured by deliveries to wholesalers, dropped 2.3 percent to average 8.87 million barrels a day in the week ended March 25, the Energy Department reported last week. Measured on a four-week average basis, demand is 0.1 percent below a year earlier.
Gasoline for May delivery added 1.75 cents, or 0.6 percent, to settle at $3.1688 a gallon yesterday on the New York Mercantile Exchange. It was the highest settlement since July 21, 2008.