Gas Price May Soar to Between $7 and $10 a Gallon
By DAN DORFMAN
Special to the SunApril 28, 2008
Get ready for another economic shock of major proportions — a virtual doubling of prices at the gas pump to as much as $10 a gallon.
That's the message from a couple of analytical energy industry trackers, both of whom, based on the surging oil prices, see considerably more pain at the pump than most drivers realize.
Gasoline nationally is in an accelerated upswing, having jumped to $3.58 a gallon from $3.50 in just the past week. In some parts of the country, including New York City and the West Coast, gas is already sporting a price tag above $4 a gallon. There was a pray-in at a Chevron station in San Francisco on Friday led by a minister asking God for cheaper gas, and an Arco gas station in San Mateo, Calif., has already raised its price to a sky-high $4.62.
In Manhattan, at a Mobil gas station at York Avenue and East 61st Street, premium gas is now $4.03 a gallon. Two days ago, it was $3.96. Why such a high price? "Blame the people at STOPEC (he meant OPEC) and the oil companies," an attendant there told me.
These increases are taking place before the all-important summer driving season, signaling even higher prices ahead.
That's also the outlook of the Automobile Association of America. "As long as the price of crude oil stays above $100 a barrel, drivers will be forced to pay more and more at the gas pump," a AAA spokesman, Troy Green, said.
Oil recently hit an all-time high of nearly $120 a barrel, more than double its early 2007 price of about $50 a barrel. It closed Friday at $118.52.
The forecasts calling for a jump to between $7 and $10 a gallon are based on the view that the price of crude is on its way to $200 in two to three years.
Translating this price into dollars and cents at the gas pump, one of our forecasters, the chairman of Houston-based Dune Energy, Alan Gaines, sees gas rising to $7-$8 a gallon. The other, a commodities tracker at Weiss Research in Jupiter, Fla., Sean Brodrick, projects a range of $8 to $10 a gallon.
While $7-$10 a gallon would be ground-breaking in America, these prices would not be trendsetting internationally. For example, European drivers are already shelling out $9 a gallon (which includes a $2-a-gallon tax).
Canadians are also being hit with rising gas prices. They are paying the American-dollar equivalent of $4.92 a gallon, and they're being told to brace themselves for prices above $5.65 a gallon this summer.
Early last year, with a barrel of oil trading in the low $50s and gasoline nationally selling in a range of $2.30 to $2.50 a gallon, Mr. Gaines — in an impressive display of crystal ball gazing — accurately predicted oil was $100-bound and that gasoline would follow suit by reaching $4 a gallon.
His latest prediction of $200 oil is open to question, since it would undoubtedly create considerable global economic distress. Further, just about every energy expert I talk to cautions me to expect a sizable pullback in oil prices, maybe to between $50 and $70 a barrel, especially if there's a global economic slowdown.
While Mr. Gaines thinks there could be a temporary decline in the oil price, he's convinced an overall uptrend is unstoppable. In fact, he thinks his $200 forecast could be conservative, and that perhaps $250 could be reached. His reasoning: a combination of shrinking supply and increasing demand, especially from China, India, and America.
Mr. Brodrick's $200 oil forecast is largely predicated on a combination of pretty flat supply and rip-roaring demand. Other key catalysts include surging demand in China and India, where auto sales are booming, and major supply disruptions in Nigeria and also in Mexico, our second-largest source of oil imports, where oil production has fallen off a cliff.
More factors include the ever-present danger of additional supply disruptions from volatile countries in the Middle East that are not our allies, and the unwillingness of SUV-loving Americans to trim their unquenchable thirst for foreign oil. Likewise, for the first time, emerging markets this year will use more oil than America.
To Mr. Brodrick, it all adds up to an ongoing energy bull market. His favorite plays are the Energy Select Sector SPDR Fund ; United States Natural Gas Fund LP; Apache Corp.; Occidental Petroleum; Anadarko Petroleum, and Schlumberger.
Gas was a buck 49 before Bush!!!
Thanx King George II