Have Avgas Prices Peaked?

Avgas prices currently range between $5 – $7 per gallon, depending on where in the U.S. you live. I was griping about $3.19 avgas when I first bought my airplane in 2007; little did I know…

We might be past the worst of it though, as oil prices must, at some point, reflect oil usage. The chart below comes from Mish’s Global Economic Trend Analysis, a widely read and respected blog; it shows USA oil demand since 1995. As you can see, oil demand peaked in 2007 and has been declining ever since (click for larger version).

oil demandIn fact, gasoline usage is currently at 2002 levels and overall petroleum usage is the same today as it was in 1998. In the struggling Eurozone, petroleum usage is down to 1996 levels.

If you are an economics geek too, we can debate why the price of oil is disconnected from demand. The Fed began injecting enormous sums of money into the system in 2008 when we were on the brink. There is no debate that much of this money landed in commodities, that is, was parked in something tangible instead of credit default swaps and sub prime mortgages.

Most pundits looked to China to keep the pressure on oil prices but their economy is now sagging too.

The good news is that avgas prices will decline along with oil prices. The flip side is that a global economic contraction is largely responsible for the diminishing demand and a sour economy is not so good for new aircraft demand and for used aircraft valuations.

 

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