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Rachel Gallo

Will gas prices rise to $5 a gallon?

by Rachel Gallo | Dun & Bradstreet Editor

February 11, 2011 | 1 Comment »

I recently had a bug put in my ear about $5 a gallon gas prices and began to wonder where exactly it came from. It turns out the prediction was made by former Shell Oil  president John Hofmeister, now the CEO and Founder of Citizens for Affordable Energy. Hofmeister has been showing up all over the media in recent months — Platts Energy Week, GMA, NPR, Fox Business, and others — with dismal predictions of $4 (in 2011) and $5 per gallon (in 2012) gas prices.

He has cited numerous reasons for his predictions, including the crisis in Egypt, rising global demand from China and other countries, and President Obama’s 2010 moratorium on deep-water oil drilling. (The moratorium was lifted last October, but Hofmeister contends that drillers still have difficulty obtaining permits to operate in the Gulf of Mexico due to ongoing government restrictions. My colleague Stuart Hampton blogged about the so-called de facto moratoriumlate last year). Hofmeister warns that if the US government does not free-up domestic oil production from politically-driven regulatory policies, then US consumers could see a repeat of the 1970s oil crisis, which led to oil shortages, rationing, closed gas stations, and skyrocketing gas prices.

Other less-startling predictions have been made — including JP Morgan Chase & Co.’s prediction that oil could hit $120 a barrel by the end of 2012 — that’s about $4 a gallon, a dollar below Hofmeister’s 2012 prediction. The energy department’s predictions, released this month, are even milder. The US Energy Information Administration, or EIA, projects that gas prices will average $3.15 a gallon in 2011 (unfortunately, that’s 37 cents per gallon higher than the 2010 average) and $3.30 in 2012. Summer prices, typically the highest of the year, could exceed $3.50 in 2011. Of course this will vary from region to region, with California and northeastern states seeing much higher averages and Texas and other south-central US states seeing below-average prices.

Judging from the range of predictions, it’s clear that no single industry expert has the price-prediction market cornered. And why? Prices have been all over the map in recent years and have historically been affected in one way or another by various factors that are unpredictable and beyond anyone’s control. A crisis heats up in the Middle East and then cools off, demand waxes and wanes with the easy-to-pin down global economy (yeah right), and oil companies make mistakes, big, millions-of-gallons-in-the-Gulf mistakes that lead to politically-driven regulatory policies.

One thing is for sure though — with the variety of predictions out there, someone is bound to be right, at least for the most part.

Photo courtesy of Don Hankins, used under a Creative Commons license.

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