Five Bucks a Gallon Gas

by TJ on February 28, 2011

Used Semi Trailers will put the spotlight on gas prices and the rumors circulating of $5 a gallon predictions.

Will we be facing $5 a gallon for gas?

With the turmoil in the Middle East as pro-democracy movements seek reforms and greater equality for their people, the threat to oil production and US oil supplies is readily apparent.

Americans can expect gas prices to rise as high as 18% to the $3.75 level over the next few weeks (currently gas is around $3.17 a gallon). This rise is due to the recent concerns over Middle East supplies given Libya and more importantly, Bahrain have started their people’s reform movement and civil unrest.  In Egypt, some semblance of control has been asserted by the military in what appears to have been a reasonably peaceful hand over of power by the outgoing Mubarrak.

Will we get to $5 a gallon?  Not likely, at least not for some time to come yet and only if conditions significantly deteriorate beyond the current situation.

One reason for the cushioning of events in the Middle East and the price you pay at the pump is that there is a global glut of oil.  Saudi Arabia alone is sitting on a surplus of 4.5 million barrels, so supplies would need to be interrupted for quite some time and on a scale much larger than at present for there to be an impact worthy of $5 a gallon pricing.

Another reason why gas pricing is not likely going to reach $5 a gallon is that Libya, the latest country to undergo civil discord, has little impact on the US oil situation.  Most Libyan oil goes to the European Union, though Bahrain is of greater concern.  Bahrain has a Sunni and Shia population which has been warring and in conflict for over 1,000 years and whilst it does not have any direct impact on the US oil situation, it is the effect it may have on neighboring Saudi Arabia which causes concern.

Another reason to be relaxed on the doom sayers’ predictions of $5 a gallon gas is that Canada and Russia are both contributing production to US oil demand.  This is diluting the impact of the Middle East uprisings, which while still cause for concern are not cause for panic…yet.

There is also an issue with the primary US oil index, the Western Texas Intermediate (WTI), which is a highly volatile index but which does not accurately reflect the global demand for oil. It is the global demand for oil which has the most direct impact on US gas pump prices, and the Brent Crude Index is a far more accurate indicator than WTI.

Next time you hear of WTI up or down $5, just remember it is not the end of the world at the gas pump.

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