Is Gasoline Going to $5 A Gallon This Summer?

The former CEO of Shell Oil USA says there is a “better than 50 percent chance” gasoline prices will hit $5 a gallon by sometime this summer.

John Hofmeister, founder of an advocacy group called Citizens for Affordable Energy,” says even though demand for gasoline is weak in the U.S., global demand for oil will keep driving the price of gasoline higher.

“What’s really unprecedented is developing countries, particularly China and India, have this insatiable need for more oil and that has not been taken into account when we think of public policy in this country,” Hofmeister said in an interview with CNBC.

Disagrees with the government

Hofmeister took issue with a report last week from the U.S. Energy Information Administration (EIA) that once again lowered its estimated demand for oil in the months ahead. His group advocates increased and faster U.S. energy development.

Hofmeister is not alone in forecasting higher gas prices, though most other predictions stop short of $5 a the pump. Since last year, some industry analysts have been warning consumers to prepare for $4 a gallon gasoline.

In the last four weeks the average U.S. price of self-serve regular has risen about 12 cents a gallon, to $3.50 a gallon, the highest it's ever been in February, according to AAA. The trend matches the one from last year, when oil prices rose in reaction to the “Arab Spring” movement that some feared would interrupt oil supplies from the Middle East. Civil war did, in fact, interrupt the flow of oil from Libya.

Projecting a peak

In 2011, the average gasoline price peaked in early May at $3.98 a gallon before a slowing economy began to drag it down over the summer. Is it possible to project from last year's rise what will happen to gas prices this year?

At this time last year, the average gasoline price was $3.12 a gallon, so the increase to $3.98 amounts to a 27 percent increase.

Today's average price is $3.50. If last year's same set of economic circumstances remained in place this year, and prices rose 27 percent from today's price of gasoline, the result would be a peak of $4.44 a gallon, a bit shy of Hofmeister's prediction, but enough to severely hurt consumers.

Ironically, U.S. consumers are paying more at the pump when supplies of gasoline are piling up. In the latest EIA weekly report, stockpiles of gasoline increased by 1.6 million barrels.

U.S. refining companies are caught in the squeeze between rising oil prices and falling U.S. gasoline demand. That puts severe pressure on their profit margins. Refineries are selling so much less fuel that three Pennsylvania refineris say their profit margins are not enough to keep them operating.