Submitted by Llewellyn King of OilPrice.com
Who, How and Why: $140 Oil and $5 Gas
According to a loosely-organized apocalyptic Christian movement, May
21, 2011 will be the "end of days." On or about that same date, the
price of oil in the United States will begin to climb to $4 a gallon,
according to two savants of the oil industry.
The former is highly unlikely but the latter is very probable.
The escalation in the price of oil is predicted by the legendary oil
man T. Boone Pickens, known for his financial acuity as well as his oil
expertise, and John Hofmeister, who retired as president of Shell Oil
Company, to sound the alarm about the rate of U.S. consumption of oil.
In an interview with a trade publication, Hofmeister predicted that
oil would rise to $4 a gallon this year and to $5 a gallon in the
election year 2012. Separately, Pickens—who has been leaning on Congress
to enact an energy policy that would switch large trucks and other
commercial vehicles from imported oil to domestic natural gas—predicts
that oil currently selling for just over $90 a barrel will go to $120 a
barrel, with a concomitant price per gallon of $4 or more.
The Obama administration appears to have been slow to grasp the
political implications of an escalation in the price of oil. When asked
about it, outgoing White House Press Secretary Robert Gibbs referred the
questioner to the Department of Energy.
Not everyone is alarmed by the incipient rise in the oil price.
Republicans, who are especially close to the oil industry and its
Washington lobby, orchestrated by the American Petroleum Institute,
think that a great deal of hay can be made while this particular sun
shines. They plan to attack the administration for spending too many
resources on alternative fuels, over-regulating the industry, and
keeping too many federal lands away from oil prospecting. They also
accuse the administration of being too frugal with its release of
drilling areas in the Gulf of Mexico and on the two coasts, as well as
The Republicans have unlikely bedfellows in their quest to politicize
the price of oil. They are joined by environmentalists who have long
believed that only high prices will break America's passion for the
Environmentalists have long advocated European-style taxation to drive motorists out of their cars and onto buses and trains.
A third interest group that will take some pleasure in rising oil
prices are those who are invested in alternatives such as ethanol, oil
from algae and electric vehicles.
Meanwhile, the International Monetary Fund is keeping an eye on the
price of oil, according to Caroline Atkinson, director of external
relations at the IMF. She told a Washington press briefing that the IMF
is particularly concerned with food and other commodities that are
directly affected by the price of oil.
Hofmeister, who now heads the non-profit Citizens for Affordable
Energy that advocates energy development in all forms, believes that the
United States could increase oil production from the current 7 million
barrels per day to 10 million, half of its consumption. He told an
interviewer from Platt's, an energy publisher and broadcaster, that we
were "essentially frittering at the edges of renewable energy, stifling
production in hydrocarbon energy," which he said could lead to
blackouts, brownouts, gas lines and rationing.
There are already signs that the Republican-controlled House of
Representatives is planning a big push for hydrocarbon energy. An
indication of this comes from Rep. Fred Upton, R-Mich., a one-time
global-warming believer who has dropped that issue from his agenda. He
is the new chairman of the House Energy and Commerce Committee.
In periods of high gasoline prices in the past, presidents have found
there is very little that they can do. Their options are to reduce the
tax on gasoline, sell oil from the Strategic Petroleum Reserve or the
Naval Petroleum Reserve. President George W. Bush went a step further:
He went to Saudi Arabia twice to ask the Saudis to increase their rate
of production. Twice he came back empty-handed.
All of this would be good news for the oil producers and especially those troublesome players, Russia and Venezuela.
Of course, if you believe the human endeavor ends on May 21, better fuel the SUV and hit the road.