Dramatic spike in gas prices forecast
Oil and gasoline prices have risen to their highest levels in two years, and analysts say prices could shoot up dramatically this year as the thirst for fuel grows in the U.S. and around the world.
The former head of Shell Oil has warned that gas prices could hit $5 a gallon by 2012 because of fast-growing demand in emerging countries such as China and India, where more and more people are buying cars, combined with restraints on drilling in the U.S. in the wake of last year’s disastrous Gulf oil spill.
Less-worrisome forecasts are calling for a rise in gas prices to $3.75 a gallon by spring from today’s $3.07 average level, with premium crude prices easily exceeding $100 a barrel this year as demand for oil around the world returns to pre-recession levels last seen in 2007.
“We’ll definitely see $100 oil,” Carl Larry, president of Oil Outlook and Opinions, told Platts Energy Week TV last week. “The way things are going — the cold weather, supply issues — $100 oil is inevitable and it’s on its way.” Higher gas prices will follow the lead of oil, as they usually do, he said.
Premium crude prices surged to nearly $92 in New York trading last week before falling back to end at $89.18 at the close of trading Thursday.
**FILE** In this May 26 photo, Kevin Stearns of Oxford, Mass., fills ... more >
“All signs point to an economic recovery, and that’s going to increase demand,” he said.
Energy consultant Wood Mackenzie estimates that developing economies pushed world oil demand last year to 86.7 million barrels a day — 100,000 barrels more than in 2007 — and will feed further demand growth to 88 million barrels in 2011.
The Organization of Petroleum Exporting Countries was mistaken in blaming the uptick in prices on “speculators” rather than an unexpectedly strong increase in demand in the developing world last year, and that led the oil ministers to put off any increase in production at a meeting last month, Mr. Larry said.
He said that was reminiscent of mistakes the oil cartel made in 2007 that led to a run-up in prices to $147 per barrel in mid-2008 — a record high that helped throw the world economy into recession.
The return of developments similar to those that led to the surge in energy prices in 2008 is attracting investors and speculators into the oil market, where they see the chance to make money by further driving up prices, he said.
Mr. Larry does not see as dire an outlook as does John Hoffmeister, former president of Shell Oil who now heads the activist group Citizens for Affordable Energy. He sees $5 gas by 2012 because politicking and gridlock over energy issues in Washington are jeopardizing access to U.S. energy supplies and have virtually shut down new production in the Gulf of Mexico.
“If we stay on our current course, within a decade we’re into energy shortages in this country big time,” he said last week. “Blackouts, brownouts, gas lines, rationing — that’s my projection based upon the current inability to make decisions.”
While the Obama administration lifted its moratorium on deep-water drilling in the Gulf weeks ago, Mr. Hoffmeister said huge regulatory barriers to development remain, and will prevent more than one or two “token” wells from being drilled in the next two years.
Analysts attribute the sudden jump in energy prices in the past month to several developments besides growing demand and restraints on supply.
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