Energy guru: $4 per gallon gas still likely
Morris Beschloss
Special to The Desert Sun
July 5, 2007
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An exclusive interview with one of America's leading energy gurus, Phil Flynn, in Chicago last week disclosed the hard facts U.S. oil producers and consumers will be facing this year.
Flynn is vice president of marketing for Alaron, a major energy trading firm.
He has become the "go-to man" on many major networks, including CNBC, MSNBC, Fox and CNN, and the Wall Street Journal and New York Times. I had the privilege of serving with him on an economics TV panel in Chicago prior to settling in the desert permanently a few years ago.
Flynn has been remarkably accurate in forecasting the pricing movements of crude oil and gasoline in the past few years and the reason for their volatility.
His predictions have been so uncanny that he has been approached by major publishers to write a book on the world's worsening energy crisis.
In our dialogue, Flynn blamed the ongoing gasoline and crude oil availability pressure on the following major factors:
U.S. refinery shortages and maintenance problems, which are due to get worse as the year progresses.
OPEC's desire to restrict shipments on what they know is a vanishing resource. The Middle East oil monopoly also is adamant in squeezing the top prices out of its oil availability, realizing that alternative energy sources eventually will cut into crude oil demand.
Saudi Arabia, the only remaining "swing" producer, conceivably could be losing production in one or more of its five major oil fields at this time.
Although crude oil touched $70 per barrel late last week, Flynn believes it should be priced even higher since West Texas Intermediate, which is quoted on the New York Mercantile Exchange, has faced increasing refining blockage. The refinery bottlenecks have caused a crude inventory backup in Cushing, Okla., the nation's main storage area.
As refinery capacity utilization is climbing to the 90 percent plus level, U.S. crude prices will rise to the mid $70 range, while London-traded Brent crude will lag by $2 to $4, the reverse of today's circumstances.
Because the latter is more difficult to refine due to its OPEC-based heavy sulfur content, it will revert back to its historically cheaper price structures.
Flynn attributes California's high prices at the pump to the state's multi-faceted blends, the state's inability to import from elsewhere and the unexpected consumer demand increase this year.
He cites the recent $4 per gallon prices in Chicago to the production breakdown of the major Whiting, Ind., refinery, and the confiscatory Illinois state taxes.
He invites consumers to check the high taxes that federal and state governments charge in these areas to ascertain what gas at the pump really costs.
Flynn believes that the present ethanol approach is an unmitigated disaster.
"Without the 51 cent subsidy," he exclaims, "this unproven energy alternative would be out of business."
Flynn considers Congress' anti-gouging legislation political grandstanding.
Although no apologist for the Big Five multinationals, he believes these major global oil and natural gas producers are beset by government restrictions, political propaganda and an inability to project their strategies through effective communications.
Flynn believes that these international monoliths are less likely to expand refining capacity as government is calling for less gasoline through mandated ethanol blends in future years.
He believes the world's geopolitical situation is getting increasingly dangerous, as the natural resource heavy nations are gaining the upper hand.
Flynn cites Vladimir Putin's Russia, Hugo Chavez's Venezuela and Mahmoud Ahmadinejad's Iran as the new "axis of oil and natural gas evil."
This is not only due to OPEC's price rigging but the loss of technological skills as engineers, geologists and other experts flee these increasingly authoritarian countries.
Even though major new oil fields are being located, Flynn says, the costs of extraction are so prohibitive that countries like Mexico financially are not capable of exploiting them.
By precluding foreign investment in their energy industry, these countries are shutting out the necessary expertise and financing.
Putting his superior forecasting record on the line, Flynn believes that crude oil will reach $75 per barrel this summer and break last year's $78 record if the hurricane season becomes increasingly active.
He adds that "if the geopolitical situation deteriorates," the $85 per barrel mark is a distinct possibility later this year.
With crude oil comprising at least 50 percent of gasoline costs, $4 per gallon at the pump won't be far behind.
"And if the ethanol scam reaches anywhere near its destructive possibilities, look for gasoline to become increasingly expensive," he adds.
When asked what all this would mean to corn-based products in America, Flynn stipulated that such inflationary impact on consumer products would be harshly felt as the year progresses.
With worldwide demand of oil at an all-time high of 86 million barrels a day, according to the International Energy Agency, Flynn concludes that the supply/demand squeeze practically will eliminate the thin margin between production and usage that now exists.