Last week, stock markets around the world were rattled when a guest on CNBC, Robert Hirsch, predicted that $12 per gallon gas was "inevitable." Furthermore, Mr. Hirsch, who was identified as a Senior Energy Advisor at Management Information Services Inc., said there is no way of stopping surging energy prices. Hirsch said that today's prices will be called "the good old days" in just a few years, when "we'll be paying $12 to $15 per gallon." Then, he said, "we're going to talk about rationing," so that "we're not going to be able to get the fuel when we want it."
I can't subscribe to all of his wild price scenarios, but at the same time I can't see any price relief in sight until after Labor Day, when the U.S. summer driving season ends. After that, oil traders will be watching the Weather Channel to monitor whether or not any hurricanes will be aimed at the Gulf of Mexico. If a major hurricane strikes U.S. refineries, then the price spike that Hirsch and others are talking about could happen.
Regarding short-term supply statistics, the Energy Department reported last Wednesday that crude oil supplies in the U.S. fell by 5.4 million barrels to 320.4 million barrels in the most recent week. That helped contribute to higher crude oil prices. Separately, the American Petroleum Institute reported a fall of 4.1 million barrels in crude supplies during the same week.
Taking a longer view, in the past four weeks, the supply of crude oil in the U.S. actually rose by 12 million barrels, as U.S. demand continues to ebb. According to the Energy Department, crude oil imports averaged 9.2 million barrels per day last week, down 696,000 barrels per day from the 9.9 million barrels per day registered a week earlier. The next big test will be to see if most U.S. consumers will change their driving habits this summer. Virtually all experts are anticipating at least a 1% drop in gasoline demand due to higher prices at the pump. Instead of driving on long vacation trips, families might consider spending their time closer to home--or even AT home.
Hirsch's talk of "peak energy" output is becoming increasingly widespread, especially since many oil executives are starting to endorse the peak oil theory. Last week, many oil executives asked Congress to open up new tracts for exploration, especially in the Gulf of Mexico and in the National Arctic Wildlife Refuge in Alaska. When one oil executive asked Congress to stop blocking oil exploration within the U.S., while also demanding that oil companies reduce gas costs to consumers, Representative Maxine Waters (D-California) threatened to nationalize the oil industry!
Emerging economies are suffering far more than developed economies from high oil prices. Last Thursday, after crude oil rose above $135 for the first time, Taiwan, Malaysia and Indonesia each announced plans to raise prices or cut their subsidies to consumers. In Taiwan, the first act of the newly elected administration of President Ma Ying-jeou was to abolish price controls on petrol and diesel from June 1 forward. Taiwan will also raise electricity prices in July. Malaysia said it would announce a new petroleum subsidy scheme in spite of rising oil prices. Other poor countries, like Indonesia, simply can't afford to keep subsidizing energy costs for their citizens.
