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Concern about gas prices appears to be back

I spent three great days last week visiting the Cleveland show. Each day I talked with dozens of fellow boaters from organizations I was active in for many years – groups like, Lake County Yacht Club, U.S. Power Squadrons, Lake Erie Safe Boating Council, Greater Cleveland Boating Association, Sea Grant and more.

What made it so pleasant was, regardless of who I was talking with, all were upbeat and convinced the recession is behind us. “Awesome,” I thought, until . . . deja vu! “What’s going to happen to gas prices this summer?” many asked. In fact, I was really caught off guard by the number of times the subject came up.

“We’ve been through this before - it shouldn’t be a problem,” I responded. “After all, we know from prior studies boaters’ major concern is not price but availability, and there’s no shortage of gas on the horizon,” I assured them. But that said, I do have concern that gas prices could, indeed, become a drag to our industry’s recovery this summer. Here’s why:

First, world oil demand is rising again. OPEC, the largest entity impacting world oil supplies, is now forecasting a growth in demand of 1.23 million barrels per day this year to 87.3 million barrels per day. The International Energy Agency is predicting an even higher rise to 89.1 million barrels per day. More supply would stabilize prices, of course, but OPEC says it’s not going to pump any more. None of the 12 countries in OPEC, which produce 40 percent of the world’s oil, reportedly see $100-$130 per barrel as “unreasonable.” When OPEC wants to boost prices, it simply reduces production. 

Second, we use 20 million barrels per day of which 13 million barrels per day are imported, according to the Department of Energy. Our stockpiles, while good now, are dropping. Gas sales are up 2 percent in the latest reports and prices now range from $2.85/gal. in Wyoming to $3.36 in California. Surprisingly, the U.S. is the world’s third largest oil producer. But, our biggest production comes from the Gulf of Mexico region, including federal offshore waters. Since the BP spill last spring, we know production there will not increase in the foreseeable future. “There’s no escape from $4 /gal. gasoline the next year or two,” contends Joseph Romm, senior fellow at the Center for American Progress in Washington, “unless there’s another global recession.”

Contrasting Romm’s conclusion, at least for the short term, is the fact that oil prices have shown some recent signs of falling. The closing price yesterday was $87.55/bbl, down about 4 percent in recent days. More importantly, the oil minister of Saudi Arabia, the world’s largest producer, recently made remarks implying oil may be getting too expensive and could threaten global economic recovery. OPEC, led by the Saudis, could easily increase production to bring down prices and that would be good news for this summer, at least. Moreover, it isn’t likely that the oil-producing nations will allow the crude price to exceed the $100/bbl mark (much less approach the record $147.27/bbl of July 2008) because of the fragile world economic recovery. So, price volatility might not happen. 

Still, as evidenced by the discussions on the floor of the Cleveland show, gas prices are, once again, becoming top-of-mind with our customers and prospects as they anticipate the coming boating season. Recognizing that now signals the need for our sales personnel to review those gas-saving product features and put them back in their sales presentation, something we haven’t needed to do in two years. In addition, it’s time to dig out those gas-saving tips sheets and brochures we’ve used in the past to educate our customers and prospects how little fuel it really takes to experience great boating outings.

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