Higher Pump Prices? Yes. But Not $5 a Gallon

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U.S. gasoline pump pricesAmericans could see gasoline pump prices spiking 10% to 18% higher in coming weeks as a result of the unrest in the Middle East -- but they're unlikely go above $4 a gallon -- unless the uprisings spread to Saudi Arabia.

Oil prices briefly crossed $100 a barrel on Wednesday after violence escalated in Libya. Benchmark crude traded on the New York Mercantile Exchange closed another $3.07 higher than on Tuesday, rising 3.2% to close at $98.49 a barrel, its highest since October 2008.

"We're going to see gasoline prices going higher in the next week, the next months and maybe in the next six weeks," says Tom Kloza, chief oil analyst at Wall, N.J.-based Oil Price Information Service. He forecasts a price in the range of $3.50 to $3.75 a gallon, up from the current $3.17 for a gallon of unleaded regular gas.

However, Kloza says he "disagrees vehemently" with analyst predictions that gas prices could shoot above $4 or even $5 a gallon. CNBC Tuesday quoted traders as saying gas prices could surpass $4 a gallon, and USA Today ran a front-page story saying that $5 a gallon gas "isn't out of the question."

One Giant Caveat


Kloza cites a good reason for why that seems unlikely: About 5.5 million barrels of excess capacity of crude oil are now available to drive prices down, of which the Saudis control 4.5 million barrels. And the Saudi oil minister rushed to assure the world on Tuesday that OPEC stood ready to raise output.

"Needless to say, everything is pure garbage if we wake up one of these days and we see there are riots in the streets of Saudi Arabia, or the royal family there is about to be overthrown," Kloza says.

Michael Lynch, president of Winchester, Mass.-based Strategic Energy & Economic Research, adds that increased Russian and Canadian production has helped boost world supplies as the crisis in the Mideast spreads. "Generally speaking, there has been a pretty good performance from non-OPEC producers, and I think that will continue," Lynch says.

Libya exports around 1.5 million barrels a day and has Africa's largest proven oil reserves. While it's an OPEC member, its effect on U.S. oil prices is limited because most of its output goes to European customers.

Deep-Seated Religious Conflict

A greater problem might be Bahrain, where deadly clashes have been ongoing for the last week. Although the island state has no oil of its own, it lies across a causeway right next to Saudi Arabia's oil-producing eastern province. Like that Saudi province, Bahrain has a large Shia Muslim population, but the country has been ruled by a Sunni monarchy. That religious conflict -- more than 1,000 years old -- is behind the violence in Bahrain and could threaten stability in Saudi Arabia. Of course, that would be far more explosive for the U.S. than the current chaos in Libya.

Lynch says another major concern is Iran. If pro-democracy violence escalates there, it could seriously hurt that country's exports, and the uprising potentially could spread to Saudi Arabia. "If Iran catches a cold, everyone worries about Saudi Arabia getting pneumonia," he says.

Kloza notes that as bad as the Libyan tragedy is, similar chaos has afflicted Nigeria for many months, yet oil has continued to flow to the U.S. without letup. One big difference, though, is that foreign oil workers have been evacuated from Libya, while they have largely remained in Nigeria.

Kloza says for gasoline to get above $4 a gallon, crude would have to rise above $125 a barrel. It's now around $106 for Brent crude, the European standard. "That couldn't be sustained for weeks and months as it was in 2008, when the trading community lost their heads," he says.

Why Brent Crude Prices Are Key

Kloza says consumers should focus more on the Brent crude price than the often-quoted gyrations of the U.S. benchmark, West Texas Intermediate. Although WTI is the focus of most financial transactions involving oil, Brent crude is a better price gauge because it more accurately reflects world oil demand, he says.

"The last thing you should do in the morning is wake up and hear that the price of WTI is up $5 or down $5 and assume that's what everything else is doing in the oil patch," Kloza says. In fact, WTI spiked $8 a barrel Tuesday, sending stocks sharply lower before retreating a bit, to close up $7.37.

The difference between Brent and WTI is around $7 to $10 a barrel, but it has been as high as $19. Still, the price of crude is nowhere yet near the level it would have to go before Americans find themselves shelling out $5 a gallon at the pump. With luck, it'll stay that way.

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jean

I will boycott Exxon/Mobile and suggest everyone else does. We can make a difference, look at what happens when the people come together, we do not raise our voices enough. People speaking out stopped Dubuy (Not sure about spelling)from buying a port, and from building a mosque on ground zero, at least for the time being. We do not come together enough and the ones that do not try only hurt the ones who do..!! We can do something about these gas prices and stop letting our dear govenment force us to except it. If everyone would stay off the road one day at the same time, it would make a difference, I believe.

March 09 2011 at 4:48 PM Report abuse rate up rate down Reply
jhnlane1

Europeans have been paying over $5 for gas for years. You don't find Hummers except in front of American Embassys. Let the price "float free" and we will see $8 $9 per gallon. We must join the real world. Mass transit has been the answer for years but the fat cats in the oil industry (remember Bush?) would not buy it. Now you and I and all of our children are facing the wall with our hands behind our backs, our eyes blindfolded and our pants down around our knees.

March 08 2011 at 10:31 PM Report abuse rate up rate down Reply
Dave

We will adjust by not driving as much, producing less, cut employing more,take more vehicles off the road entirely, stop expanding working radius, and shortening the work week. It worked in 2008 and we will do it quicker in 2011. I will not wait like I did in 2008 for those at the helm to wake up.

March 02 2011 at 7:01 PM Report abuse rate up rate down Reply
caohellsux1978

There is an email circulating around now to boycott the biggest of the big, Exxon/Mobil. If we could band together and do that, and get to their profits, it may cause them to lower prices. Then the others would follow suit. It would take a concentrated effort though from alot of people. I would say to start this as soon as possible, and take it through Memorial Day. That is the offiical opening of the summer driving season. Between now and then, DO NOT BUY EXXON/MOBIL PRODUCTS. LETS SEE IF WE CAN COME TOGETHER AND AMKE A DIFFERENCE.

March 02 2011 at 7:05 AM Report abuse +1 rate up rate down Reply
ddeelot

By this time NEXT YEAR ,gas will be $10, a gallon ,
We "lay down and take it " AMERICANS will still be saying "THANK GOD IT ISN"T ANY HIGHER.
We have enough oil to support our own country, but our Government demands on us being dependent on foreign countries.
Both party Presidents are to blame for the COLLAPSE of AMERICA.
ALL Presidents make sure that "We The PEOPLE" stay divided.
As long as we let them do that; UNITED WE STAND,DIVIDED WE WILL FALL!!!
Wake up America . Your Foundamental change is happening.
YOU ARE NOT GOING TO LIKE IT!!!!

March 01 2011 at 3:31 PM Report abuse rate up rate down Reply
Deborah

If you add the $1.78 per gallon that the government is subsidizing ethanol, it IS $5 a gallon. What can you do?

DON'T BUY THE ETHANOL. It doesn't take much research to see how much energy, water and land it uses -- far more than the energy it produces. It ruins your gas mileage and destroys your car engine. How does THAT make the environment feel?

Go out of your way if you have to, but do the research, find the ethanol-free stuff, and buy it! Encourage your friends to do the same. Big business won't tell you the truth about this when they are making such a killing on the subsidies. Car manufacturers WANT you to have to replace your car more often. We have to pass this message around ourselves.

February 26 2011 at 11:10 AM Report abuse rate up rate down Reply
n2umicro

THANKS TO DICK CHENEY ,BUSH. WOLFOWITZ,RUMSFELD FOR CREATING SHIA CONTROLED IRAQ

AKA GREATER IRAN.

February 25 2011 at 9:25 AM Report abuse rate up rate down Reply
1 reply to n2umicro's comment
evrgns

obama will furnish you a wind car and a perfect fit

March 01 2011 at 1:02 AM Report abuse rate up rate down Reply
n2umicro

AFTER SHOCKS OF GW'S IRAQ INVASION ARE STILL HERE 10 YEARS LATER AND FILLING THE POCKETS OF GEORGES OIL BUDDIES AN IMPOWERISHING THE REST OF AMERICA.

February 25 2011 at 8:36 AM Report abuse rate up rate down Reply
johnskii

Well Bush is no longer at the helm for two years now so we can't blame him. The Democrats had control of the Presidency, Congress and the House of Representatives and not one law was passed protecting the American consumer/taxpayer from the oil lobby/speculation/companies. Why???

February 25 2011 at 7:57 AM Report abuse +2 rate up rate down Reply
1 reply to johnskii's comment
Dave

They have no excuse 2008 all over it seems like the change in wind sends prices up hope they choke on it

March 02 2011 at 7:04 PM Report abuse rate up rate down Reply
boyd

need to boycot thes theving oil co.americans are stuped for letting other countrys holding us hostige,come on people lets keep this country free!

February 24 2011 at 10:31 PM Report abuse rate up rate down Reply