With oil prices moving higher, consumers are already fretting about how much it's going to cost them to fill their tanks. And given the current outlook, that cost is going to head even higher – meaning there's no relief in sight.
The political mayhem in Egypt is the latest oil-price catalyst to appear, and is yet another candidate to help push 2011 oil prices closer to the predicted $150-a-barrel level. Analysts worry that Egypt's chaos could disrupt the millions of barrels of oil that pass through the Suez Canal.
Traders' main unease is that the political unrest in Egypt is something that could occur in neighboring countries – especially those with a much bigger influence on the global oil exporting market.
"I do believe we are going to see a spread of this popular uprising across the Middle East," Fadel Gheit, a senior energy analyst at Oppenheimer & Co Inc. (NYSE: OPY), told CNNMoney. "Traders are rightfully concerned."
Nearly a quarter of the world's supply of oil comes from Middle East nations. About 35% of that total, or 7 million barrels a day, comes from Saudi Arabia. While any governing power would want revenue from oil, past experiences show that a severe interruption due to civil unrest would prevent workers from getting to their jobs and maintaining expected daily shipments. The distribution delay would put upward pressure on prices.
Some traders think the likelihood of revolt spreading is slim, but others point out that there had been no big fear of such a situation breaking out in Egypt.
"Two weeks ago everyone thought the [Egyptian President Hosni] Mubarak regime was one of the most stable in the world," Oppenheimer's Gheit said last week.
Egypt's political crisis is the latest driving force behind rising oil prices.
Continued economic recovery, supply constrictions and increased emerging market demand are expected to push 2011 oil prices to triple-digit records. Oil futures on the NYMEX rose 12% to average more than $85 a barrel during the October-December period, and climbed past $90 a barrel in December.
The U.S. Department of Energy predicts gasoline prices will average $3.17 a gallon in 2011 and $3.29 a gallon in 2012. The estimates are based on 2011 oil prices of $93 a barrel and 2012 prices of $99 a barrel, which are lower than many analysts' predictions.
And those estimates are minimum amounts. Gas prices on the U.S. West Coast average 25 cents higher per gallon than the rest of the country, and peak driving season could see prices at the pump reach $4.00 a gallon.
This prompted last week's Money Morning "Question of the Week": Are you concerned about rising oil prices in 2011? Has the Egypt political crisis exacerbated your oil price fears? Are you preparing for more price pressure at the pump in coming months? Are you taking advantage of investment opportunities in the energy industry?
The following comments highlight readers' concerns about energy consumption, oil reliance and rising gas prices.
Time to Cut Consumption
I am not concerned. No sense getting upset about the inevitable. I figured $4.00 per gallon gas was going to happen this year anyway and look to see $5.00 a gallon by next year. We are well passed the peak of oil availability. We can look for a 2% – 3% drop yearly so 25% less oil available in 10 years. Prices are bound to go up.
We need to learn how to use less, lots less. Government needs to lead by example. How many schools do you know that use geothermal energy? I know of one. How many government buildings use geothermal? I don't know of any; although the White House now has solar panels (they were shamed into using them).
As for myself, I have cut down driving to town to no more than three times a month. When I can get milk and eggs from neighbors, it will be less. A tank of gas lasts me two months. I hope to make that three months or more when weather warms up and I can drive one of the ponies.
The best part is, less gas usage may be the end of climate change. Lack of oil may keep us from killing ourselves. Addicts don't quit until they see death.
– Doris K.
I know there is urgency to create a frenzy to sell subscriptions to newsletters and to encourage oil prices to advance, but in the face of that OPEC [Organization of the Petroleum Exporting Countries] is considering (or has done already) increased production of oil. Does this not lower or control the price of oil? It seems the last time oil hit $150 per barrel it was due to speculators driving the price up to a point a lot of them took a bath. That is like last summer the price of gas was to go to $4.00 per gallon. It stayed between $2.50 and $2.70 a gallon all summer and into fall. Sometimes speculation drives the price more than the actual demand. It does not make sense, and yet it does.
– BW in Missouri
Gas Prices Pack a Double Whammy
We appear to be in a bubble economy, where the only thing that keeps it growing is the money that the U.S. Federal Reserve keeps pumping in, plus the confidence that it will keep pumping. Bernanke defends quantitative easing (QE) by saying that there is no evidence of inflation, but if gasoline prices continue to rise he may find that public sentiment compels him to stop. If that happens, then gas prices will have a double whammy on the economy.
First, rising gas prices suck money out of the rest of the economy, causing it to shrink, and second, if people become sufficiently angry about rising gas prices, Congress will at least threaten to take away the independence of the Fed. If QE were abruptly suspended, or even threatened with suspension, I suspect that our whole economy would implode. The confidence that QE will continue is all I can see that keeps the stock market rising. Our whole economy has become a bubble, and gasoline prices may be the pin that pricks it.
– Gordon F.
Inevitable – and Painful
My concern is that the impending price increase in oil will stifle economic growth once again. T Boone Pickens and others (natural gas executives) have advocated natural gas, which would remove some of our dependence on oil, benefit the environment and add economic stability – but where the heck is it?
We need to build out the infrastructure (create jobs in the United States), which requires leadership that is interested in something besides healthcare reform. I have hedges in place but that will not stop the pain and suffering that high oil prices will inevitably create for a majority of the people in this country and around the world. We'll be lucky if Iran doesn't become aggressive and launch into a conflict that closes the Strait of Hormuz or the Suez Canal or both. If I were on their side of the chessboard those options would be a consideration. By the way, look at their (Iranian) use of natural gas as a transportation fuel. Makes you feel pretty ignorant, used or misled, eh?
The optimist in me says that any dramatic change in oil price will result in pushing us toward a more sustainable future but the road to this future will be more like a roller coaster ride and a lot less enjoyable (keep the vomit bag handy) for a great many people.
– Bruce R.
Concerned, yes, always have been. I own two Toyota Pruis' and two electric vehicles, an eGo bike, and an NmG. $4.00 a gallon gas is low by world standards as Europe is at $7.40 a gallon currently. Administration officials want to get U.S. gas prices in line with Europe.
I don't see many people car-pooling yet. I have seen a few riding bicycles. If we are going to compete with China we will have to learn to do as they do. That will be good for our general health as well.
– Roger N.
I predict $5.00 a gallon before the end of 2011.
– Dennis M.
Invested and Ready
I already took up my position in energy funds.
– Anthony M.
Be sure to answer next week's question: Have you gone mobile? If so, how far? Do you have a smartphone and tablet? Do you find yourself using mobile computing more than your PC? Do you regularly use apps? If you aren't immersed in mobile computing, why not??
Send your answers to firstname.lastname@example.org.!
Is there a topic you want to see covered as a "Question of the Week" feature? Then let us know by e-mailing Money Morning at email@example.com. Make sure to reference "question of the week suggestion" in the subject line. We reserve the right to edit responses for length, grammar and clarity.
Thanks to everyone who took the time to participate – via e-mail or by posting their comments directly on the Money Morning Web site.]
News and Related Story Links:
- Money Morning:
Egyptian Oil Operations Abandoned as Protests Disrupt Energy Industry
- Money Morning:
Egypt's Political Unrest Should Point Investors Toward U.S. Energy Producers and Crude Oil
- Money Morning:
Oil Companies Pumping Profits as Crude Continues to Climb
- Money Morning:
Obama's "Better Buildings" Plan Aims to Fuel Green Energy Development at the Expense of Oil Majors
Egypt oil threat may be overblown
U.S. Department of Energy Predicts Gasoline to Average $3.17 Per Gallon in 2011
- Money Morning News Archive:
Question of the Week Feature