$5 gas may be coming soon

Here are the top 3 reasons pump prices will keep rising.

By InvestorPlace Jan 14, 2011 11:52AM
Gas pump © ComstockBy Jeff Reeves, Editor of InvestorPlace.com
   

Crude oil prices are rising steadily, up about 22% since a May "low" of around $77 a barrel, and gasoline prices have jumped in lockstep. There are a lot of reasons behind an increase in crude oil prices per barrel, as well as gas costs at the pump, but one thing appears certain: The $2 gas we saw at the beginning of 2009 is a distant memory, and the $3 gas of today is here to stay.


As much as it will pain commuters to hear it, it's very likely the days of $4 and even $5 gasoline lie ahead. A look at expert forecasts and recent news about crude oil prices indicate the recent run-up is not a short-lived phenomenon.


Here are three reasons to expect expensive gas for the rest of 2011:

 
Big Oil needs expensive gas to survive. According to industry experts, the "easy" oil in the Middle East and Africa can be pumped for as little as $5 a barrel from simple surface wells. Costs vary greatly for unconventional projects such as deep-water drilling and tar sands but can easily be $40 a barrel or higher for tough-to-access supplies of oil.
 

 

With fierce global competiton and  state-run monopolies in Venezuela and China squeezing out Western energy giants, the bottom line is that cheap oil, and subsequently cheap gasoline, just doesn't work out on the balance sheets of Big Oil.

Call me a conspiracy theorist, but considering that Exxon Mobil (XOM), Chevron (CVX), BP plc (BP), ConocoPhillips (COP) and Royal Dutch Shell (RDS.A) have a collective market value of well over $1 trillion, it's hard to imagine all that financial clout simply sitting by and letting oil slump back to 50 or 60 bucks a barrel when high-tech, high-cost extraction leaves them little or no profit margin.

OPEC wants expensive oil. The Organization of the Petroleum Exporting Countries has made it clear that $100 oil isn't a sign of alarm but rather a decent equilibrium. The group has gone on the record saying oil prices above $100 a barrel are no reason for an emergency session.


"If oil prices increase to $100 or more, it is not worrying and does not justify holding an extraordinary meeting by OPEC," Iranian oil minister Masoud Mirkazemi was quoted as saying by the ministry's news agency Shana. Is not worrying to whom, Mr. Mirkazemi? I think motorists and crude-dependent industries would have a different point of view.

 

Supply problems are becoming common. Just this week, we learned the Trans Alaska Oil Pipeline network is suffering continuous pumping and leaking problems, raising concerns about tightening global oil supply. According to reports, Exxon and BP at one point slashed output by 95% this week. That adds up to 600,000 barrels a day lost -- and despite reports of progress, the pipeline has yet to return to full capacity as of this writing.


At the same time, U.S. commercial oil supplies fell 1.2% to 335.3 million barrels last week. And as commodity expert George Kleinman wrote recently, the EIA Energy Stocks Report shows a steady downward spiral in the amount of crude oil currently on hand. With news that OPEC countries like Iran and Kuwait will keep output constant, we are up against a supply shortfall in the months ahead.

 

Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Follow him on Twitter at http://twitter.com/JeffReevesIP.

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58Comments
Jan 14, 2011 4:30PM
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Maybe we just need to quit being so Dependent on Foreign Oil and Gas to run our Nation, and do what Brazil does with Sugar Cane Ethanol.  Most of Brazil Rely's solely on its own Ethanol.

 

We need to Cut out the Middlemen who want to charge us an arm and a leg for Gasoline which used to sell for less than a DOLLAR a GALLON!

 

And with all that OIL Just Sitting in the GULF Of MEXICO there is NO REASON why we shouldn't be dependent on our own sources for Gasoline!

 

Its all about GREED people!  The American PUBLIC won't stand for Higher Gas Prices, when more than a quarter of ALL Americans can't find JOBS and Employment to even be able to PAY FOR IT!!

Jan 14, 2011 3:43PM
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Boohoo come to Holland we're paying about $8 for years now!!
Jan 14, 2011 5:43PM
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This should make a nice dead cat bounce of our "recovery"....if there was such a thing. It's not the extra $80 a month that's going to put my family in the poor house, but the snowball effect it has on prices of everything when are already not competitive in the new global market. Sadly you can blame the greenies for a majority of this problem...can't drill so we import....can't fish or control the seal population so we import 80% of our seafood....can't manufacture anything if the factories smokestack doesn't smell like flowers so we import it.....

It's all from the SAME PLANET. They are just allowing other countries to get to the top at our demise.

It's the 25% + rise in grains and food that worries me.

I'd hope maybe when lots of us are starving you'll join the pack and put some pitchforks thru your favorite politicians.

 

 

Jan 14, 2011 3:42PM
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The writer IS off base on a number of things.  (he was probably hired by big oil)  OPEC has come right out and said that $80 a barrel is "fair and equitable".  It is big oil pushing the prices up.  Exxon just reported 4th quarter profits of $14 billion.  How do they get by on that? 

  Our own government has a rule....that I learned from my congressman, that as long as gasoline is $5 a gallon or less, they will not do a thing about it.  So....Oil can gouge us all they want and we have no recourse.  Currently, we have the most oil stockpiled in this country than we have had in over 10 years.  We are in the middle of the slowest drive period of the year.  We are in the middle of an awful recession so no one has any money to travel.  Also, we have been conserving and doing everything we should to conserve oil and gasoline.

 So...does any of this matter??  NO!!  They will keep gouging us, lieing to us and stealing our ready cash which will hurt spending and keep us in a recession.

Jan 14, 2011 5:15PM
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Let's allow the rich to get richer and drive the middle class right out of the good ole US. This oughta help jumpstart the economy, ha ha. And since ethanol decreases gas mileage, why not add more to gas? I see 2 classes of citizens, rich or very poor.
Jan 14, 2011 8:30PM
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The last time oil prices shot up dramatically, it wasn't OPEC and it wasn't Big Oil.

 

It was Wall Street Speculators.

 

Is Mr. Reeves riding cover for the bandits again - ahead of their next bubble of profits?

Jan 14, 2011 4:55PM
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Sounds as if it's time to purchase oil company stock. That should help pay for the rising cost of gasoline. In the meantime, I'll be driving my little car that gets as low as 31 mpg in cold weather & traffic and almost hit 40 mpg on a trip last year. The higher the price of gas goes, the more money I save by driving my little, fuel-efficient car.

 

This will drive the price of hybrids and small, fuel-efficient cars a lot higher, and the prices for large gas-guzzlers lower. Might be the time to pick up an old Crown Vic Police Interceptor and go for a big joy ride!

Jan 14, 2011 4:24PM
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what a jike - do you understand the concepts of supply and demand and how they articulate with each other?  no matter how powerful a company might be and no matter how much you may wish it to not be true, the fact is this - if there is less demand for a thing (oil) then the price of that thing will follow demand downward. 

 

sure there are many many variables that also impact the price of commodities like oil but fundamentally it gets down to simple macro economics

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supply and demand my ****....they price it whatever they want , whenever they want for whatever reason they want. If there is light demand they raise it to make money, if there is high demand they raise it to make money...doesn't matter how much is available, they do it anyway so to say only supply and demand is the equation is bull hockey.

The Big oil control the emerging new fuels for tomorrow and when gas is used less they wil jack up the price and even with the truely cheaper alternatives with price those high so either way we are fuc@ed...just watch and see.

Jan 14, 2011 3:52PM
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When gas prices hit $4.00 food prices will sore along with it. Expect riots and crime to sky rocket to the point where martial law will be implemented. It's going to happen not a matter of "if" but "when". However, I suspect the mighty elite will brew up a new war during the myst of this double crises to level thier playing field of power. Most people (or sheeple) do not know the real issues at hand, the largest problem is over population. There are too many consuming, breeding, worthless dumbarses on this planet that need to go. That is the truth, people, and a population scale back will happen. 
Jan 14, 2011 3:34PM
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while you are correct that there are significant deposits here in the US, between environentailsts and the government (local and national) itis prohibitively difficult to actaully drill for this oil.

 

And the primary reason that gas prices are rising is that us consumers continue to buy it (demand).  there are some supply related drivers as well primarily around lack of refining capacity over the last several months but fundamentally, if we don't buy as much of it, the prices will drop

Jan 14, 2011 3:55PM
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true about gas prices outside the US - most places are 2 or 3 times what we pay in US.

 

$80 is fair for OPEC but not desirable by any consumer outside of OPEC states I am sure.  again, big oil only sells the oil for what consumers are willing to pay for it.  stop buying it and prices drop

 

global demand for oil is rising and the impact of that is felt in US at the gas pump.  cannot escape macro economics and supply/demand equilibrium

Jan 14, 2011 3:37PM
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Don't know how much oil america has on its home soil nor do I know how much it costs or how difficult it is to refine bio-fuels.  I do know that america is a producer of food.  LOTS of food.  We have given hand outs to other countries for way to long because the people of america feel that it should be given to them out of the goodness of our hearts.  Yet those that we give food too turn around and stab us in the back daily.  I say let the Mo-fos starve.  And as for the business of oil hopefully we won't do what we did with food.  As other countries run out we give them hand outs.  I say save it for our selves and let the other countries burn in roits.
Jan 14, 2011 5:57PM
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I have a car that runs on LPG gas and it runs very well. All our taxis and many courier vehicles in Australia run on straight LPG and have done so for many years. Ford and Honda have also designed cars that run on natural compressed gas that required some modifications to existing engine. There are huge supplies of natural gas around the world. Australia  export it and have over 100 years supply in reserve. If I filled my car with compressed gas it would cost about $2 bucks. This fuel source is less polluting and could be perfected to take up a larger part of transport energy requirements.

 

Jan 14, 2011 3:13PM
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I say to everyone right here and now. SAVE YOUR MONEY UP FOR A LONG TIME TO GO IF YOU CAN. More pain and suffering is coming and doesnt look promising. I  thought gas and oil prices should be affordable for everyone  so the economy would make more jobs and its recovery around 2015. IF, this takes place of 5.00 a gallon of gas. This aint gonna ever happen because were not working all together as one and we're doing something wrong and lots of funds are being handled not right. Keep your vehicles filled, so you dont have pay alot at the pump. Wishing the best for everyone this year hoping and praying for gas and oil to take a turn the other way.

Jan 14, 2011 2:46PM
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While the FED keeps printing money....

Everything keeps going up...food, insurance, fuel,,,,,

You can bet the oil companies Wont lose a single dime....

even if we  cut back on fuel consumption, they will raise prices

to keep their profit margin....

Did notice government didnt raise SS for people on a fix income...

government said prices wouldnt  go up much..?...?

Jan 15, 2011 12:28AM
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Actually the 3 reasons can be summed up by Gordon Gekko [spelliing?]

1.  GREED

2.  GREED, and

3.  GREED

Jan 14, 2011 7:20PM
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Must be smoking something. Very same comments when oil was supposed to be going to $300. A car does not run without gas. The economy would be in a ression before that price. China (reason behind every bullish call on oil) is already raising rates to slow their economy due to inflation. All these commentators/analysts were doing before the bubble burst was talking up their own books and selling into their "strong buy" calls.
Jan 14, 2011 2:34PM
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Could it possibly be that Big Bureaucracy / Big Green have their own agenda? Al Gore didn’t get stinking rich from his good looks (or inventing the internet). We know that coal can be converted in to oil for about $70 a barrel and we certainly have no shortage of coal. We also have large, untapped domestic supplies of oil (on-shore) any reason (besides political) that we’re not going after that? We haven’t built a new oil refinery in this country in over 30 years, so we have to ship our oil to other countries to have it refined.

 

Why don’t we continue to demonize every American Industry until they all go overseas? That appears to be the intent.

Jan 14, 2011 2:24PM
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I don't really give a darn, because I drive honda's and toyota's. Plus I'll just pull out my new TREK bike I bought when gas was high before out of the closet. If we all do this if we can then they will have to drop the price again like before.
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