Record February Gas Prices, And Getting Higher

The national average cost of gasoline hit $3.13 per gallon on Friday, continuing an upward climb above record highs for this time of year. And though the price of crude has slipped somewhat from its January peak above $92 per barrel, the IEA this week released a new energy forecast that predicting oil to average $93 per barrel for 2011—a $14 increase over last year.

Crude’s resurgence has been attributed to a variety of causes and there is disagreement about the primary catalyst driving the price forward. Fears over a disruption of tankers moving through the Suez Canal have subsided—a factor that seems to be behind oil’s recent downward adjustment—and there is little question about the ability of producers to meet demand in short-run. But the market has also been forced to price-in several long-term considerations that have put an upward pressure on oil futures.

Wikileaks Sheds New Light on Legitimacy of Peak Oil Fears

This week, Wikileaks revealed that in 2007, a Saudi oil executive privately warned a U.S. diplomat that his country’s oil reserves are significantly lower than claimed. Sadad al-Husseini, the former head of exploration for the state-run oil monopoly, Aramco, is said to have told the diplomat that “Aramco’s reserves are overstated by as much as 300bn barrels.” The official went on to predict that “once 50% of original proven reserves [have] been reached…a steady output in decline will ensue and no amount of effort will be able to stop it.”

The news itself had little impact on oil prices—supposedly, the cables in question were widely known about on Wall Street years before their Wikileaks release—and many analysts have long downgraded Saudi estimates of the amount of recoverable reserves remaining in that country.

Indeed, the sentiment underpinning investors’ bullish oil outlook stems more from the collective potential for supply-demand strife down the road (like “peak oil” in places like Saudi Arabia,) than from any specific news event of the past few months.

Economic Growing Pains Could Punish at the Pump

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Another driver for oil prices has been the increasingly popular view that the United States is headed for an inflationary period. Years of deficit spending—coupled with the predicted long-term effects of Federal Reserve policies intended to stimulate the financial system—have led to concerns that the American money supply has grown faster than the economy itself. As the world’s top oil consumer, the U.S. has the power to drastically alter the world market for oil with a weakening dollar.

Many experts believe that the true threat to oil price stability comes not from the potential for a disruption of supply, but from the impending growth of demand in developing economies.

“There are 700 cars for every 1,000 Americans right now,” said Brad Schaeffer of INFA Energy Brokers to CNBC.com recently. “Currently, there are 30 cars for every 1,000 Chinese: And that number is expected to go up to 240 by the year 2035. That implies an enormous strain on existing crude oil supplies.

Reading the tea leaves only gets you so far, but the cumulative message to take from recent world events and the corresponding performance of energy markets, is that investors are betting on a sustained increase in the price of oil in the near future. And unlike the 2008 oil spike, this time around, there may be no looking back.


  • Anonymous

    welcome to the new reality, which we have known is coming for years. there is no excuse for not being prepared.

  • Game_Hunter

    This is why you should do the math and then run to buy an electric car to replace your daily commuter if it’s even close to realistic. If Nissan could only get one in my hands I’d replace my Smart Fortwo without a second thought despite it being only 2 years old with less than 15k on it and a joy to drive.

    My brain is telling me, “$4 by Summer, $5 by Christmas. Get off this treadmill to protect yourself.”

    Come on, Nissan! You can do it!

  • JamesDavis

    It seems like when Bush allowed the gas prices to reach $4.15 a gallon and then snickered about it, he started a wave of greed and gluttony that swept across this country like a grass fire and then engulfed the world. He kept this country half scared to death and that allowed him to implement his agenda of “Get everything you can no matter how before they catch on!” and they have been doing it ever since. People caught on a little in 2006 and 2008 and voted all the Republicans out of office…but the damage had already been done and can never be undone with conventional thinking. The Republicans regained a little bit of power in 2010 and look how they are acting – like they just got their demigod/warlord president back and they are going to undo everything this x-president Obama has done and back-step and continue their old agenda of “death, destruction, poverty and war to everyone who is not rich like they are”.

    A quick fix for all this greed, gluttony and lies is to pour billions into auto makers who are not owned or operated by a Republican and have them start mass producing all electric cars (like Nissan is doing now) and make them affordable so the common person can afford to buy or trade to a all electric and get away from the gas pump. Let’s see what excuse they come up with then for raising the prices of everything out of reach of the common person. Let’s see if they use this excuse again, “We have to raise prices because of ‘like of supply and demand’.

  • Peter B

    Lets do some math. After the federal rebate a Nissan Leaf would cost you $25280. Your smart car gets 38 mpg (source: http://en.wikipedia.org/wiki/Smart_Fortwo).

    You said it is two years old and only has $15000 miles on it. That works out to 7500 miles per year. 7500 / 38 mpg means in a year you only use 197 gallons of fuel. That make you the greenest person I have ever known. Even if gas were to hit $10 per gallon you would still be using less then $2000 in fuel per year meaning even if you got electricity for free it would still take you 12 years to pay for the Nissan Leaf in fuel savings. If gas only rises to $5 per gallon you will have to drive the Nissan for 24 years to pay it off with fuel savings.

    Take my advice dude keep the smart car.

  • Julie Kinnear

    If the allegation about the reserves of Saudi Arabia proves to be true than the only option open to us will be to rely on the reserves of Iraq. However, the country is still undergoing a profound change so it may be difficult to cooperate with.

  • bizcon

    With emphasis on increasing fuel efficiency of all vehicles/gadgets the present consumption level can stabilised. But rat race for bigger vehicles will defeat the endeavour. Instead of the government initiating consumer education drive, it is moral duty of the auto manufacturers of the world to implement projects for fuel efficient cars and to teach their customers. It will benefit all. Intensive research in Alternative energy sources pressed into service can still be viable with rising gas prices.

  • Anonymous

    From dashboard at respective year end (except 2007):

    Yr / Total hybrid vehicle sales / % of all new vehicle sales
    2010 274,763 2.37%;
    2009 290,272 2.78%;
    2008 314,271 2.37%;
    2007* 350,358 2.17%

    *estimated from Dec 2008 dashboard

    Can America beat total hybrid sales of 2007 (350,358) and highest percentage of hybrid vehicles sales (2009) in 2011?

  • Lad

    Come now people; don’t you realize the cost of gasoline has been kept low by agreement and oil subsides from our central government. You are talking about subtleties here: a 30 billion dollar subsidy for exploration, not collecting federal fees for drilling costs and looking the other way when safety and proper paperwork are at stake, just to name those that have been published. Don’t forget the last White house was staffed by oil company favorites for eight years.

    I wonder what the price of gasoline would be without this financial assistance.

  • Anonymous

    Real price of a gallon of gas? $11.35 according to some accounts.

    http://www.hybridcars.com/news/real-cost-gallon-gas-835.html

  • 55mpg

    Price that I have paid for a gallon of gasoline at the pump: $3.07
    Price that my children have paid for that same gasoline: $8.30
    Total cost of a gallon of gasoline: $3.07 + $8.30 = $11.35

  • Samie

    Excellent article, if I may say so. Somehow the message always gets lost politically.

  • Anonymous

    It doesn’t look like private cars are the future. There is simply not enough energy for that:

    http://scitizen.com/future-energies/the-electric-car-fetish_a-14-3607.html

  • Yegor

    The data is out of date:
    Currently there are more than 128 cars for every 1,000 Chinese.
    http://en.wikipedia.org/wiki/List_of_countries_by_vehicles_per_capita

  • greg45

    It was so crazy how high the gas prices are getting. They definitely took a dip in the summer but definitely see them going right back up. Unsure what the future will bring. Will Davidson LLP