Gas Prices May Rise To $5 A Gallon Later This Year

Gas prices have dropped to the lowest they’ve been since 2009, but it may hit $5 a gallon later this year.

The prediction comes from Shell Oil’s former president, John Hofmeister.

The reason for such cheap gas prices today is partially due to the excess supply of oil. The U.S. Energy Information Administration analyzed the situation and predicts that prices will average $2.33 this year. Hofmeister say that the high oil production is overstated because supply is outdoing demand by just 1 million barrels a day.

“The next round of high prices is likely to start later this year, as crude rebounds to the $80s and $90s, perhaps pushing to the $100 level by late in the year or early next.” He believes it will be the growth in global demand “relative to how much capital constraints gets baked into future plans for production this year and next.”

Demand growth hovers around 2% every year, but if new production capital lags behind, there could be major constraints next year. 2016 is also an election year, which also tends to result in higher prices.

Oil demand will grow closer to 100 million barrels a day over the next several years. Capital production will most likely lag behind this demand, according to Hofmeister. This is where he sees gas prices reaching $5 a gallon and “possible shortages of fuel in some parts of the world.”

Shell’s former president isn’t the only one concerned. ConocoPhillips CEO, Ryan Lance is very shocked at how quickly gas prices have fallen. Lance believes it’s very possible that history could repeat itself. In 2009, after the great recession, prices rebounded quicker than anticipated.

“Prices went to $30, $40 a barrel, and just a matter of months later, it was back to $100 a barrel,” Lance says. “That’s the kind of volatility we’re in.”

Today, Hofmeister promotes the use of natural gas as a transportation fuel. He is the head of the organization, Citizens and Affordable Energy.

The market’s future is difficult to predict, so there’s a chance Hofmeister’s $5 gas theory won’t happen. In 2012, he predicted gas prices would hit $5 a gallon in 2012 due to the rise in crude oil prices. The average fuel price in 2012 hovered around $4.

Only time will tell. Perhaps demand won’t increase as much as he predicts.

[PhotoCredit: npr, WP]

Gas Prices May Rise To $5 A Gallon Later This Year