Crude oil and gasoline prices are in focus right now for a number of reasons. Geopolitical unrest across the Mideast and Africa is putting pressure on supplies. The ghost of an economic recovery, coupled with strong baseline demand from emerging markets such as China, mean that the need for crude isn’t slacking off. Throw in increased taxes for some regions, including Maryland and Virginia, which are debating higher surcharges on gasoline, and you have the recipe for record pump prices.
What factors are at play? Here are five reasons you may see $5 gas — or higher — in 2012:
1. Demand Has Two Possibilities — Slow Growth or Fast Growth
Baseline energy demand is very stable and growing at a decent clip even if you take a rather bearish view of the global economy. Consider that OPEC, the source of more than a third of the world’s oil, recently made waves when it said that global demand will rise in 2012 by “only” 940,000 barrels per day on broad economic uncertainty. That was a very pessimistic view and a downward revision of previous forecasts. But it’s still growth on the demand side, no matter what.
2. Iran Is Only the Tip of the Iceberg
If you think Iran sanctions are the only thing pushing up oil prices, think again. The Chinese executive in charge of Petrodar, the largest foreign oil company in South Sudan, has been expelled from the country over allegations he conspired with Sudan to steal the south’s oil.
Syrian forces loyal to embattled President Bashar al-Assad continue to wage civil war against the opposition, and oil production in the country has become an afterthought. The situation in Yemen is a bit less violent, but people were killed this week even as the country tried to hold an election to replace veteran leader Ali Abdullah Saleh.
Daily oil production in Yemen fell to 170,000 barrels per day in 2011, sharply down from the estimated 259,000 bpd for 2010, and continues to decline. There is a growing consensus that Nigeria — Africa’s top oil producer and most populous nation — is buckling under the weight of internal conflict and could be the next to fall.
3. Unprecedented Intervention Is Being Discussed
Forget just tapping America’s strategic petroleum reserve, as some have suggested. Reuters analyst John Kemp thinks there’s a very good chance that the International Energy Agency may be called on to release strategic reserves into the global energy market for only the fourth time since the group was created in 1974.
Kemp says the loss of oil supplies from South Sudan, Syria, Yemen and Iran has resulted in a crisis that other oil-producing nations can’t alleviate. He writes that “if extra Saudi supplies prove inadequate and unable to stem the continued drawdown in inventories, the agency may be compelled to order a release to avert the risk of a damaging price spike.”
4. BofA Says $80 Oil Will Be “Cheap” Until 2017
According to a recent Bloomberg Businessweek report, Bank of America (NYSE:BAC) analysts are predicting that brent crude is unlikely to fall below $80 a barrel in the next five years. That’s based on average prices, and predictions of further production slowdowns and rising OPEC budgets that will naturally demand higher prices.
5. “The Donald” Says So
Say what you will about the attention-seeking ways of the Celebrity Apprentice host, often-bankrupt entrepreneur and wannabe presidential nominee — but he knows how to make headlines. And make headlines he did in a recent NewsMax interview in which he predicted gas as high as $6 a gallon.
“We are in a very fragile period of time. Oil is going through the roof. Gasoline is going to hit five dollars, six dollars — who knows what it’s going to hit? There’s nobody representing us, and certainly nobody representing us well with respect to the OPEC nations, so they’re laughing all the way to the bank.“