Don't Hold Breath for $2 Gas

Consumers hoping for the return of gas less than $2 per gallon might as well be wishing on a recession.

General petroleum economics are pushing prices down, but OPEC and tight supply and capacity will likely put on the brakes before prices ever reach that magic number.

The only thing that would almost guarantee a return to the $2 range would be a precipitous slowdown in economic growth.

"You're not likely to see sub-$2-per-gallon gas without a recession," said Jason Schenker, an energy economist with Wachovia Bank. "We think we are going to see more sub-trend growth. It's slowing, but that's not a recession."

In Southwest Florida, the drop in gas prices has been stuck in neutral for the past week or so.

The average price for a gallon of regular gas in the Bradenton-Sarasota-Venice market was $2.224 on Thursday, the same as the day before and only 11 cents less than a month ago, AAA reported.

The automobile club does not track prices in Charlotte County-North Port, but in nearby Fort Myers-Cape Coral, the average was $2.261, down slightly from $2.267 on Wednesday and down about 23 cents from a month ago.

Gas prices are much more likely to rise right now than fall, said David Mica, a spokesman for the Florida Petroleum Council.

"Excess capacity and supply continues to be at record lows," Mica said. "The susceptibility of this market to international incidents or changes make it much more volatile than in recent years."

Demand would have to drop significantly enough to push the price of crude oil south of $55 per barrel to trigger more pricing declines -- and that's only likely to happen during a recession, said Doug MacIntyre, an economist with the Energy Information Administration.

The most immediate factor in pricing has been OPEC's decision to cut production by 1.2 million barrels per day. The group will meet again in mid-December to decide on whether it will decrease production by 5 million barrels per day more.

A few months ago, the market eased because of a less active hurricane season and geopolitical climate, but the impact of those factors has bottomed out.

"The price of gasoline could go lower, but the only reason for that would be if crude oil prices dropped significantly lower than they are now," MacIntyre said.

So, why would a recession lower prices?

Not only would fewer families be hitting the open road for vacations, but fewer products would be bought. Fewer sales mean less shipping.

A recession is not out of the question, said Schenker, the Wachovia economist.

"We do put the probability of a recession next year at about 30 percent," he said.

Rate-ing the drop

Attentive consumers likely have observed the consistent drop in gas prices during the past three months -- dropping 80 times in the past 86 days.

Truly attentive consumers, such as the appropriately named Walter Rate, also have noticed fluctuations in the price of crude oil; it fell by more than $2 this week alone.

The 37-year-old owner-operator of Walt's Lawn Care has kept even closer tabs on what that means in terms of his take-home pay.

Rate now spends about $400 per month on gasoline, down 20 percent from four months ago.

"The less I spend on a per-month basis, the more I take home," he said. "I do what I can do to be frugal, but there's only so many pay increases you can pass on to your customers before they say 'Hey!'"

Rate also has considered changing credit card companies, a common practice among tradespeople forced to spend significant chunks of their day behind the wheel, he says.

Introductory offers typically give back 10 to 15 percent on gasoline purchases.

"Luckily, things are getting better. The lowest I've seen it was $2.09 at a RaceTrac in Sarasota," Rate said. "It's getting down towards $2 a gallon, which is what they said it would be around this time."

But Rate doesn't expect things to keep going that way.

"Who knows? The next major conflict will do something to oil prices," he said.

If not, he expects that action from OPEC and the oil companies will.

"It definitely affects everything. It affects everyone," Rate said of gas prices.

Much of Rate's predictions as a consumer coincide with what the experts are saying.

Though those interviewed by the Herald-Tribune are split on whether prices will remain flat, decline slightly or rise gradually for the winter, they agree that the differential between now and then will be minimal -- short of an economic downturn or some geopolitical agitation.

By the end of January, market pressures will send prices upward once again, some suggested. By the end of winter, the oil market will likely ease back into a $55 to $65 per barrel balance.

"A lot of the market participants are very happy with that price," Schenker said, speaking about Wall Street investors, consumers and OPEC.

For the next two weeks, prices will likely hover, as they have been doing.

There might be one bright spot in OPEC's vow to lower its production.

"There's a trust factor. They come together. They make these deals, and it just depends on whether they follow the deal or not. That's the question," Mica said.

It is unlikely that all OPEC participants will actually cut production by the promised levels, Schenker said.

"They are likely to reduce production, but not as much as they promised. With prices well above the historic norms, it's difficult to imagine that all of those countries are just going to cut production," he said.