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    Gas Price Spike Forecast

    Demand expected to increase in United States.

    NEW YORK -- Oil and gasoline prices increased to their highest levels in two years and may shoot up dramatically in 2011 as the thirst for fuel grows in the United States and around the world, according to The Washington Times.

    The former president of Shell Oil warned gasoline prices could hit $5 a gallon by 2012, as demand grows quickly in emerging countries, including China and India, where more people are buying cars and restraints on U.S. drilling continue. John Hofmeister, who now heads Citizens for Affordable Energy, said the high prices will come in the wake of politicking and gridlock over energy issues in Washington, which are jeopardizing access to U.S. energy supplies and have nearly shut down new production in the Gulf of Mexico.

    "If we stay on our current course, within a decade we're into energy shortages in this country big time," he said last week. "Blackouts, brownouts, gas lines, rationing -- that's my projection based upon the current inability to make decisions."

    Other forecasts are calling for a rise in gas prices to $3.75 a gallon by spring, with premium crude prices easily exceeding $100 a barrel as demand for oil around the world returns to pre-recession levels last seen in 2007, the newspaper reported.

    "We'll definitely see $100 oil," Carl Larry, president of Oil Outlook and Opinions, told Platts Energy Week TV. "The way things are going -- the cold weather, supply issues -- $100 oil is inevitable and it's on its way."

    Larry said the spike in energy prices is being driven by robust growth in oil consumption in Asia and rising U.S. demand. "All signs point to an economic recovery, and that's going to increase demand," he said.

    The Organization of Petroleum Exporting Countries mistakenly blamed recent price increases on "speculators," rather than an unexpectedly strong increase in demand in the developing world last year, Larry added. The situation is reminiscent of mistakes the oil cartel made in 2007 that led to a run-up in prices to $147 per barrel in mid-2008, a record high that helped throw the world economy into recession.

    Analysts attribute the sudden jump in energy prices in the past month to several developments besides growing demand and restraints on supply. Because oil is priced in U.S. dollars, it tends to rise when the dollar falls. Investors also are starting to bid up the price of oil and other commodities such as gold and copper, as they did in 2007 and 2008, because those commodities hold their values when the dollar is falling and are seen as good hedges against inflation.

    Speculators also are zeroing in on evidence that world oil production may not keep up with fast-rising demand, creating the potential for tight markets and oil shortages especially if the U.S. starts experiencing healthier economic growth.

    Some analysts fear the world may already have reached so-called "peak oil" output and may be unprepared for another big run-up in demand, according to the newspaper. According to Tom Whipple of the Post Carbon Institute, the International Energy Agency appeared to concede the world reached peak production of 70 million barrels a day of conventional crude oil from underground wells in 2004.

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