Market analyst predicts cheaper gasoline in the coming year

DECATUR (MCT) — Consumers could continue seeing much wanted relief at the gas pump, if the predictions of one energy analyst again prove to be correct.

The United States is poised for what Marshall Adkins, during a presentation Thursday at Millikin University, termed as an “unbelievable transition” in oil production. If the forecast holds up, the price of fuel could approach $2.50 a gallon by early next year, said Adkins, director of energy research for Raymond James and Associates Inc.

The effect of lower oil prices could be far-reaching for the economy, Adkins said.

“It would be a huge boost to economic recovery if they could bring gas prices to $2.50, which is where I think we’re headed,” he said. “It would be a huge positive for our country. In a normal economy, it would have a bigger impact. Depending on what happens in Europe, it won’t be as big of a bump as it normally would.”

Adkins was speaking at a luncheon to a group of clients for the Decatur-based Brechnitz Group.

Adkins has been on the right track this year for predicting oil prices, as he said in March, when the price was about $105 a barrel, that it would drop to about $85 a barrel, which is where it is now. His latest prediction shows oil dropping further to between $60 and $65 a barrel in the coming months.

“This is not a consensus viewpoint,” Adkins said.

The changes come as the U.S. oil supply increases faster than previously thought and demand has dropped, he said. Heading into the year, Adkins said the U.S. oil supply was expected to increase at a pace of 300,000 barrels a day and reach 700,000 by September.

As of April, the pace was already up to 850,000 barrels and could reach 1.2 million by next year, Adkins said.

“If the supply grows to 1 million barrels a day in a year, it changes everything,” he said. “It’s way ahead of the model.”

The reasons for the changing supply trends include more oil drilling, the Gulf of Mexico starting to recover and improved efficiency in production, Adkins said.

Demand for oil has not increased while fuel has cost more in the past few years, Adkins said. Drivers are using smaller and more fuel-efficient vehicles, Adkins said.

“They’re driving a lot less, which started even before the recession hit,” Adkins said. “Clearly, something has changed. This is a sustainable trend going forward.”

The primary goal of the Brechnitz Group is to help its clients make money, said Erik Brechnitz, senior vice president of investments.

Understanding the affects of the energy changes could alter what investments are most profitable, Brechnitz said.

“It changes the things we recommend,” he said. “While it’s bad news for those in energy positions, it can be good news for other companies.”

Almost everyone outside of the energy infrastructure and refining would be winners, should the trends continue. The United States could become a stronger country as its trade deficit shrinks, Adkins said.

Adkins cautioned that his predictions might not hold up if any of several mitigating factors, such as a war with Iran, were to occur. The unstable economic situation in Europe could lead to short-term volatility, he said.

However, if the trends continue as he foresees, Adkins said the game appears as though it will change for oil in the next five years, as it did for natural gas five years ago.

The price of natural gas has dropped to below $3 per 1,000 cubic feet, thanks to new technology and drilling techniques, but Adkins said it should increase between 75 cents and $1 next year.

“This is the low point for gas this year,” he said. “It will get better, but it’s going to be a slow process.”

Adkins said most of the changes in energy production can be attributed to private companies, as it doesn’t appear to be coming from federal sources.