This Insider Thinks Oil Prices Will Skyrocket

Former Shell Oil president John Hofmeister says declining prices means drillers are taking their platforms offline, and that means higher prices for consumers.

By Brenda SalinasMarch 4, 2015 8:58 am

The price of crude oil is at its lowest levels in six years and its second-lowest in over ten years. But that $50 a barrel pricing won’t last, says John Hofmeister. The former president of Royal Dutch Shell is predicting that a combination of decreasing production and increasing demand will bring prices up.

“Let’s keep in mind the surplus of oil that is happening each day is only about one and a half million barrels a day of production over the demand for the world. At a million barrels a day on a 91 million barrel base, that’s not a lot of extra oil,” Hofmeister says.

Hofmeister garnered national attention in 2010, when he predicted gasoline prices would hit $5 a gallon in 2012. That was a little over a dollar too high, with prices reaching nearly $4 nation-wide. Hofmeister has since founded the think-tank Citizens for Affordable Energy.

“As we get closer to 2020 and we’re looking at demand exceeding certainly 91 million barrels all the way to 100 million barrels, I think we will see skyrocketing oil prices again, and by skyrocketing I mean north of $125 perhaps $150 a barrel,” Hofmeister says.

Hofmeister says drillers have been shutting down their platforms worldwide since prices started plummeting last year.

“I think we’ll see as many 1,200 out of 1,900 rigs in this country frankly be idled. And what we also know from experience with financial reports that were seeing is that many of the drillers are actually drilling on borrowed money and they have bank covenants which come due and which have to be honored,” Hofmeister says.

Lower prices means less production, meaning higher prices for consumers, especially as demand begins to creep back up, Hofmeister says.

“I do think we’ll see a tightness in the oil supply begin to creep into the overall situation sometime around this summer. Which means we may see crude oil prices creep up or even shoot up if we have that many rigs not being used in the field. Yes, we can recover, yes we can bring the rigs from being idled back into the field, but that all takes time.”

John Hofmeister is a former president of Shell Oil. He is the founder and CEO for the Houston-based Citizens for Affordable Energy and directs the Texas Education Reform Committee.