How Will $4.00 per Gallon Gas Affect the Real Estate Recovery
This is a good article to cut and paste and send to all of your sellers.
Many experts expect gas prices to be at $4.00 per gallon by Memorial Day and possibly approach $5.00 per gallon by year end. Their rationale for this dramatic increase is as follows:
- Value of the dollar – With the Federal Reserve printing more dollars for stimulus spending, the value of the dollar will continue to drop. This helps exports, making US-made goods cheaper overseas, but increases the price of imported oil because the dollar buys less.
- Reduced Supply – Norway which has been a big producer is seeing lower production from its North Sea wells, and Mexico has seen a drop in production as well.
- Drilling restrictions placed on oil exploration and expansion of existing reserves in the aftermath of the BP Gulf disaster has decreased supply.
- Middle East turmoil will impact future supplies, especially if there is an escalation in the unrest in Egypt, Tunisia, Yemen, the Sudan, and the rest of the region.
- OPEC policy – OPEC production and pricing policy have been managed to maintain $90+ per barrel pricing.
- Difficulty getting future reserves – Brazil has tremendous offshore oil reserves which could reduce concerns, but they are difficult to extract. Likewise, deep sea reserves along the US continental shelf could hold 85 billion barrels of oil but environmental concerns are hindering exploration.
- Increased demand – As world economies gradually recover and the debt crisis eases, there will be an automatic increase in demand. Continued historic growth in China’s economy will also drive increased demand.
- American Buying Habits – Remarkable as it seems, Americans have not changed their buying habits. Gas-guzzling SUVs and trucks reigned supreme as auto purchases increased dramatically throughout last year.
- Investor speculation – According to Deutsche Bank, present US demand for gas is at 8.2 million barrels per day, about a 2% increase in demand from early 2010 levels. Compare this 2% increase in demand to the 23% increase in price per gallon ($3.20 vs $2.60) at the pump Dec. 31, 2009. The price has shot up dramatically as speculators have bought up future reserves to profit from anticipated price increases. Crude oil prices have increased from $71.97/barrel at the end of January 2010 to $103.00/barrel today, a 43% increase.
Oil prices are likely to remain high for several years. Consider the impact $4 per gallon gas had on the economy the last time it hit these levels a little more than a year ago. If the experts are correct, another significant jump to $4 as the economy is struggling to gain momentum could have a devastating effect on both consumers and the economic recovery in the US. It’s more crucial than ever that home sellers are priced correctly for the market.