Gasoline price decline screeches to a halt and makes a U-turn

It was great while it lasted, but the decline of gasoline prices has finally ended, at least for now, and the national average price for a gallon of regular unleaded gasoline has started to rise again. It hit a low of $1.660 on Monday and has risen for the past two days.

A big part of the reversal and gain is uncertainty over the impact of any OPEC output cuts. It is very unclear exactly how much excess supply is currently being produced, how much excess inventory is currently being stored in unneeded ships that do not count in the official inventory numbers, and the trend in demand. Traders and speculators can make assumptions and push up prices, but until the cuts are official and in operation, we will not know. Eventually traders and speculators will finish their current "push" and we will see whether OPEC members have enough discipline to enforce the cuts and whether supply really does fall to true demand.

Another factor here is that despite the economic turmoil, people are getting used to low gasoline prices and actually enjoying the holiday season. Traffic is terrible here in Manhattan and the streets are mobbed with tourists. I see a lot of school buses with kids coming in from outside the city. Cheap gasoline is enabling this "boom" in travel. How this increase in demand trends after the holiday season is another matter.

The AAA Daily Fuel Gauge Report national average retail price for a gallon of regular unleaded gasoline has risen to $1.667.

January RBOB unleaded gasoline futures are at $1.0900, indicating that retail prices are headed for $1.69 to $1.74 within a few weeks, about 5 cents above the current price level. Actually, wholesale and retail prices are reasonable closely balanced, so there is no inherent trend other than what happens with retail demand or wholesale prices.

-- Jack Krupansky