Don't Look Now, But Gas Prices Are Headed Higher Again

Just as motorists were finally breathing a sigh of relief at the gas pump, industry analysts predict prices will soon be headed higher again.

The latest reason is the unexpected disagreement among members of OPEC this week about how much oil to produce. Saudi Arabia led the faction that wanted to produce more. The reason, advanced by the Saudis, is that prices are now too high and will end up choking the economic recovery.

If that happens, the Saudis warned, oil prices will fall hard and fast, much like they did in late 2008. Also, an unstable energy environment will motivate big consumers like the U.S. to find alternatives to OPRC oil.

Resistance to producing more

But the resistance to producing more oil was led by Iran and Venezuela – two countries it should be pointed out generally hostile to the U.S. Venezuelan President Hugo Chavez told reporters he thinks prices are fair the way they are.

Absent an agreement, OPEC members are likely to produce as much or as little oil as they want, meaning there could be more oil in the months ahead, if Saudi Arabia, Kuwait, the United Arab Emirates, and other countries that favor increasing production actually go ahead and produce more. Or, the amount could remain the same.

But the oil futures market continues to see the glass as half-empty. The fact that OPEC couldn't agree was seen as a bad sign – or good sign if you are an oil speculator long on crude oil – and oil prices soared in Wednesday's trading.

Price jump

The price of U.S. light sweet crude, which had dropped below $98 a barrel, closed over $100 a barrel. Analysts say in this new environment, it could top out at $110 to $120 a barrel, pushing the price of gas well over $4 a gallon.

Also helping to push prices higher was Wednesday's weekly report from the U.S. Energy Information Administration, showing U.S. stockpiles of crude oil fell in the previous week. The supply is still plentiful, but the fact that supplies were less than expected added to the upward pressure on prices.

By the same token, supplies of gasoline went up last week. However, that had little effect on the wholesale price of gasoline.