And it means the U.S. once and for all must stop with an incoherent energy policy that seems to chiefly rely on alternative energy or drawing down on the Strategic Petroleum Reserve.
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Gulf Oil chief executive officer Joe Petrowski offers up his rational, lucid insights to Fox Business on the economic implications of the spikes higher in oil and gas prices, and what the U.S. can do right now.
Already beleaguered U.S. households will fork over roughly $700 more for gasoline in 2011 versus last year, using an annualized price of $3.61 a gallon. That’s a hike in gas at the pump of about 28% year over year, to a total annual car fuel expense of $3,235.
And Mr. Petrowski tells Fox Business “a rise in gasoline prices will be worse for consumers than in 2008 because [of] the tighter credit/debit (plastic) for the vast majority of consumers,” meaning, credit card and debit card rates have risen since then.
A veteran oil executive well regarded in the oil markets, Mr. Petrowski also offers these insights to Fox Business:
* “While the Mideast is certainly the catalyst for the recent price rise and certainly the big wild card, we should not simply focus on the Libyan production shortfall of almost 900,000 barrels (one-half their production).”
* “A drop in U.S. production of 300,000 barrels per day (self imposed) and an increase in demand (600,000 bpd) in the U.S., along with a 1 million barrel increase in world demand (70% China driven) along with production problems in other areas (knocking off 500,000 barrels) means the aggregate swing in daily supply and demand is closer to 2.4 million barrels or 3%.” That is gut wrenching,
* “If you believe there is even a 10% chance of a 25% shortfall" in the rest of the world's "hot spots, you can add another 2.5% shortfall to daily supply.”
* Mr. Petrowski says that while “last year's prices average $80 on West Texas Intermediate," then $100 oil on average is to be expected even “without a Mideast risk premium.”
* “If you factor in another 20% for a Mideast risk premium, then $120 would be an expected price.”
* “Low interest rates, speculative momentum, [and a] cheap dollar makes my original $125 per barrel by Memorial Day reasonable (markets always overshoot both directions).”
* “Tapping the SPR now is wrong; it is Novocaine to the wound--I would feel better addressing the wound and eliminating the cause.”
Mr. Petrowski says the U.S. can do this:
- Increase domestic production- Shift transportation fuel to natural gas- Dampen speculative fever (via low interest rates).
The Gulf Oil chief executive also notes:
* “In Massachusetts today we are spending 70 cents per gallon more than a year ago which is almost $1400 after tax per household which is almost 20% of discretionary income per household for 70% of population.”
* “At current retail prices we are starting to see signs of demand rationing, especially places such as Florida where a large amount of driving is discretionary.”* “Higher energy prices are a threat to the economy--and are especially regressive,” hurting lower income families. He adds: “They are NOT beneficial to facilitating alternate energy products--92% of transportation demand is still petroleum based and will be for the foreseeable future.”
* “We should not be 92% dependent on petroleum in the transportation sector,” he says, but more importantly, that supply should “not be concentrated in a part of the world that is extremely unstable and volatile."
* “Investors should understand the US oil industry has undergone a two-decade long disintegration of the supply channel.”
* "A small number of major oil companies are operating at the retail gas station level. Less than 10% of gasoline stations are owned and operated by integrated majors, and therefore price shocks pass through the system quicker to the consumer than 30 years ago.”* “We need to stop confusing green energy and green jobs with the need to diversify and increase supply security.”
* "With a substantial amount of the population [in the Mideast] under 30, impoverished revolution and upheaval is inevitable. And like tectonic plates that have not moved in a long while, the rupture almost has to be violent. In the long run democracy should evolve and that is welcome but getting there will not be easy and it is in our national interest to lessen our dependence.”* “The only short term answer to this is more domestic drilling. The argument that there is not enough domestic prospects is illogical--if there are not many prospects, we have nothing to fear from issuing drilling permits and conversion of a substantial amount of our fleet and Class 6 trucks to natural gas."
* "Note lost that last week natural gas struggled to stay above $4.mmbtu a $28/barrel petroleum equivalent while world oil soared in price.”* “While there are balance of payment benefits to replacing foreign oil--as [energy guru T. Boone] Pickens argues--the bigger problem is lack of supply diversity. If we dropped our oil usage by 20%, but had a larger percentage come from this region, we would be worse off, not better off.”* “In all of our energy discussions we should and cannot escape the price impact.”* “Cheap non-volatile energy that prices in all the external costs should be the foundational goal of our national energy policy.”