Recently an article by Joe Carroll in Bloomberg said that gasoline prices could hit $4 a gallon this year. This is higher than gasoline has ever been around here. The most I have ever seen was $3.25 a gallon, a few days after Katrina struck, when power outages were preventing local pipelines from receiving fuel. But AAA of Maryland has struck back with an article saying that it is premature or irresponsible to say it will do that. So which is right?
There are many factors influencing the price of oil. Some of the ones Bloomberg mentions are hurricanes, tensions in the Middle East, Nigeria, and other places, supply, and demand from consumers, primarily in the US. Any one of these could cause shortages and cause prices to skyrocket. But suppose everything is OK? For a while, then, gasoline prices will stay in the upper $2s, as things will be mostly OK. There is an economic boom in this country, however, and this will cause demand to heat up. But the major factor, I feel, will be supply. There are some serious problems coming up.
The four biggest oil fields in the world are all declining: Ghawar in Saudi Arabia, Cantarell in Mexico, Burgan in Kuwait, and Da Qing in China. More oil is coming online, but this will be from smaller fields and I am not sure that this increase will counteract the declines in the Big 4. Already Pemex, the Mexican oil company, is showing pressure. It is seeing its profit margins declining, and is fearing for the future. If Mexico should stop sending fuel to the US, it could have a dramatic effect on prices.
So I say there is a possibility of gasoline going to $4, because the world has hit peak oil and world oil production is declining. Sooner or later, the decline will filter down to the gasoline pump.
