2011 was a bad year for gas prices, but a good year for Big Oil. 2012 is shaping up to be even worse, with a perfect storm of ending energy subsidies, uncertainty in the world’s busiest oil-shipping corridor, and growing demand from developing nations. Could this be the first year of $5 a gallon gasoline?
In the year 2011, gas prices averaged over $3.50 a gallon nationwide, 72 centers a gallon higher than in 2010. Analysts are estimating that in 2012, gas prices will average between $3.80 and $4.13 a gallon for the year. In some places, gas could top $5 a gallon. That’s no surprise to me, as there are a number of contributing factors at work here.
For one, Congress voted to end the ethanol blenders tax credit after 30 years. Oil companies were recieved 45-cents per gallon of ethanol blending into gasoline. Since most of us fill up with E10, that results in a 4.5 cent per gallon increase, right there.
But the end of ethanol subsidies isn’t the only issue. Iran has been threatening to close the Straight of Hormuz, through which 20% of the world’s oil passes every day. That is about 17 million barrels of crude pass through the Straight of Hormuz which, at its narrowest, is only about 34 miles wide. If Iran shuts the straight down (which is extremely unlikely) it could send shockwaves through world energy prices.
Even if Iran only threatens to close the straight, it could be enough to rattle skittish investors, who through speculation could drive oil prices sky high. Add to that recent protests and revolutions in Nigeria, Libya, Egypt, Syria, and other oil-producing countries and, well, the whole place is one match away from becoming a revolutionary tinderbox.
And finally, there is the developing world, nations like China, India, and Brazil, where a surge in the middle class has brought a desire for more cars, and more fuel. There is only so much oil to go around at any given time, and with the U.S. economy finally looking like it might rebound, we will be wanting to use more fuel, too.
If you were thinking about doing that alt-fuel conversion, now might be a good time…