Get Ready for Gas Prices to Hit $5 by Summer
CNBC Senior Talent Producer
The price of gasoline continues to go up and economists are keeping a watchful eye to see if it will slow down the U.S. economic recovery.
Every year around this time, as we get closer to the start of the summer driving season, we find ourselves talking about the price of gas. John Hofmeister, former Shell Oil USA operations president and founder and CEO of Citizens for Affordable Energy, recently talked with NetNet’s C-Suite about what factors he is looking at when formulating his oil outlook.
JH: There are several factors I look at: Domestic production: what is the level and how believable are the numbers we are getting from the EIA? The administration is suggesting overall production is up. It is up in an absolute sense. However, they are counting gas shale production. But that does nothing for diesel and gasoline consumption. Gas shale cannot be refined for transportation fuels.
The second thing to watch is growth demand in both India and China, which is growing 10-12 percent a year.
By 2015, China will need about 5 to6 million of new barrels a day to meet its new consumers. China’s fleet is growing in double-digit percentages. More and more Chinese who have never had a car are buying new vehicles. That is going to increase their gasoline demand.
Third thing to watch is the spread between Brent and West Texas. With the closing of three refineries on the east coast, the North East population will be importing Brent imports, which is at a higher price. Sunoco and Texaco both closed refineries because they could not get the West Texas crude at a lower price. It’s more difficult to get the oil from the West Coast because of the lack of infrastructure. It is easier to bring in finish product from Europe. All of these will have an accumulative impact on the price of gasoline.
LL: Where do you see the price of gas this summer?
JH: We will be on our way to five dollars on a national average. This could impact the U.S. recovery. If you turn the clock back one year, we were seeing these prices in February and the economy slowed in May, June and July and it became a grave concern of the administration. People pull backed on spending. It’s essentially an invisible tax.
LL: If we could expand our energy exploration here, how much could it lower our price of gasoline?
JH: We would need to set a target of 10 million barrels a day plus, 2 million barrels a day of biofuels and have more efficient vehicles on the road. That would take about 80 percent of our daily demand. That’s an equivalent of 15 million barrels a day. If this all happened we would end up with $2.50 gasoline. It’s utter failure of not just this administration but past administrations to not to take domestic production seriously.
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A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."