An attack on Saudi oil production would cause gas prices to skyrocket
Food for thought for car buyers
I’ve been closely following the Middle East and oil stories since Egypt, when I predicted $4.00 gas sometime in 2011. Now my call looks like it will probably come true. Even worse, gas prices could spike much higher, although such a spike will probably be temporary.
So, how should higher gas prices factor into your car buying decision making?
Today, oil prices are over $104 per barrel and the consensus in the markets is that instability in the Middle East will remain, minimally, for several months and will therefore drive oil prices higher, as the spreads in the future’s markets already suggest. Couple this with the normal increase in gas prices caused by the switch to summer blends of gasoline and a national average of $4.00 gasoline is almost baked in the books, even if just temporary.
Obviously, if $4.00 is the national average, prices in most urban areas will be a good bit higher, yet the upside potential for much higher prices is very real according to floor traders and analysts. If tensions increase in Bahrain, Oman and, particularly Saudi Arabia, watch out. And just for fun, there is also the ongoing possibility of an Iranian revolution – something famed investor George Soros is now calling – that could drastically disrupt the Middle East for years.
The good news, however, is that supplies of oil and gas are relatively sufficient, and if tensions in the Middle East calm down, oil prices should drop back into the $80’s. Unfortunately, gas prices rise faster than they fall. And if the US and world economies continue to recover, eventually demand will also push prices back higher.
Consequently, the short term gas price story is going higher, but these prices could eventually pull back, at least to some extent. However, the long term story seems to indicate that Middle East turmoil will inevitably keep upward pricing pressure on pump prices. Couple that with any global economic recovery and supply issues will eventually arise.
Thus, if you are in the market for a car, think $4.00 gas. There’s a good chance $4.00 could become the new average, and there is a chance prices could spike even much higher. So, why not be prepared for higher gas prices? If prices decline significantly, you’ll still be prepared for the spikes sure to hit the markets again and again over the next few years.
Therefore, make fuel economy an important metric for determining what car you should buy next, and if you live in an urban area, hybrid cars could become very good investments because of higher than average gasoline prices and congestion. And if you think the Middle East is about to explode, you might want to think full plug-in vehicles, such as the Nissan Leaf or Chevy Volt.