$100 Oil and $4 Gasoline – A Continual Trend

As crude oil prices hover around $90 a barrel and gasoline at an average of $3.00 per gallon according to AAA, it appears that many analysts are predicting even higher prices for 2011.

Due to growing global demand, analysts from companies such as Morgan Stanley, Goldman Sachs Group Inc., JPMorgan, and Merrill Lynch all see oil prices climbing to $100 in 2011.  As well, other analysts are predicting even higher prices.  Economist Dian L. Chu is predicting crude could hit $110 to $115 a barrel in March of 2011.  In a recent blog post Chu wrote, “At that level, gasoline at the pump could hit $3.70-$3.80 a gallon range.”

On a recent CBS talk show, Former Shell Oil president John Hofmesiter predicts that world oil supplies will tighten and gasoline prices will hit $5.00 in 2012.  In his opinion, these price increases are caused by competition and growth of the emerging economies of China and India.  “We’re right back to where we were in 2007 and 2008, in terms of U.S. demand.  What’s different this time, however, is that Asia’s demand is much, much higher than two years ago,” said Hofmesiter.

World crude oil production has leveled off in the past 3 years in the range of 85 million barrels per day, indicating peak oil has arrived.  In the 1970’s, the U.S. produced 10 million barrels per day.  Currently, the U.S. consumes 20 million barrels a day and produces a mere 7 million.  Instead of producing more oil to meet our demand, the unfortunate scenario is that we’re producing less.

Growing U.S. oil production would have a significant and beneficial impact on oil and gasoline prices in our country.  The big question is, “Why are prices increasing and are we doing enough here at home to thwart these inevitable increases?”  Unfortunately, instead of sustaining our demand through domestic production, policy makers keep 90% of our Outer Continental Shelf resources off limits.  Additionally, drilling in the Gulf of Mexico is shut down and the next five-year federal leasing plan has been postponed until 2017.

Rising prices in an economic recession can be a confusing scenario.  It’s important to understand how this could occur and how the coming price increases are indications of a larger global issue.

Many will suggest that speculators play a part in rising prices, as was the case when oil prices hit a record of $147.  Speculators will always have some degree of price impact in any commodity market.  However, we see a greater issue here at work: oil supply vs. oil demand.

The truth is that oil is finite and rising global demand is unsustainable at current production rates.  Simply put, world supplies of crude production can’t keep up pace with skyrocketing global demand.  While U.S. demand for oil remains flat, demand for oil continues to rise in developing economies such as India and China.  This rising demand, lack of supply, and continued production decline is the root of continued price increases and is driving the global market today.  Peak oil is real and prices will continue to rise as global production continues to decline.  For the sake of our country and our way of life, we must seek policies that increase our access to produce domestic energy and establish sound policies that address the coming energy crisis.



Interested in more national news? We've got you covered! See More National News
Previous Article
Next Article

Trending on The Hayride

No trending posts were found.