If you’ve filled your tank lately, you already know about rising gas prices. Nationwide, the average price at the pump is a painful $3.55 per gallon, and the summer travel months aren’t even here yet! Unfortunately, the way world events are unfolding, it may be time to brace yourself for higher prices at the pump.
One of the main contributing factors to the current wallet-gouging prices of gasoline is the existing unrest in the Middle East and North Africa (MENA). MENA nations seem to be taking turns at being the bad headline of the day, but there are a few areas where you should be paying special attention due to their potential future impact on your pocketbook.
Libya is responsible for a mere two percent of the world’s oil supply. Yet Gadhafi’s brutal response to his rebels and their subsequent destruction of some of Libya’s oil pipelines has been enough to send the price of oil soaring. Shortly after the hostilities there broke out, oil spiked up to more than $100/barrel, and it’s not giving up its gains, notes Reuters. Instead, the price per barrel for crude oil is approaching $115 (Brent crude) with few signs of relenting. Turns out that two percent is a pretty important percentage of supply after all!
In fact, the way current events are going, it looks like not only is that two percent not coming back any time soon, but Libya may soon be consuming even more of the world’s oil. The G8 is debating turning the country into a no-fly zone, gobbling up hordes of jet fuel in patrols of the space. It all spells even higher prices at the pump … unless there’s someone willing to pick up the slack?
When Libya’s ability to be a world oil supplier bit the dust, Saudi Arabia immediately stepped up to the plate. “Don’t worry about it,” the Saudi’s assured global markets. “We have plenty of capacity over here.” The oil-rich nation has boosted its output by about 700,000 barrels a day over the last month.
The trouble is that the Saudi’s easy assurances aren’t ringing true with those who really dig into the numbers. The vast Saudi oil fields don’t have the excess capacity that the government claims is there – in fact, WikiLeaks has released cables between officials indicating that Saudi Arabia may be overstating its supply capabilities by as much as 40 percent!
Official spokesmen deny all of this, of course. Yet investigators with Britain’s Guardian newspaper have gone on record saying that the Saudis may hit their peak oil point as early as 2012. By boosting their outputs now to cover Libya’s shortfall, they are bringing their day of reckoning that much closer.
Looking at all of this information, analysts in the know, like Jim Rodgers, are telling consumers to start appreciating their $3.55 gas – it might be the last time they see prices that low! Prices are high, but they haven’t hit the 2008 peak of $4.16/gallon at the pump, or even come close to the 1970’s era gas prices, which work out in today’s dollars to more than $7/gallon, according to the Cato Institute.
Much of the future of gas prices depends on what happens to the price of crude oil. At around $115/barrel now, it only needs to go to $120 to have a serious negative impact on the world economy, according to analysts at Deutsch Bank. That’s so scarily close to reality already that you may want to fill your tank up as soon as you finish reading this article.
The $120 price point isn’t even the worst part. Trade analysts with the Bank of Japan have predicted that crude oil might hit $220 a barrel by this summer if the situation in the MENA nations doesn’t resolve. A hike of that proportion would effectively double the price you pay at the pump.
It all adds up to a need to keep a wary eye on world affairs and a careful eye on your gas consumption. Work on improving the fuel efficiency of your vehicle or start looking at other options. With Libya boiling over, Saudi Arabia fudging the numbers, and crude oil costs up sharply over the last month, it’s only prudent to get ready for higher gas prices now.