Oil Tops $100 a Barrel Over Libya Unrest; Are Higher Gas Prices Coming?

U.S. oil prices hit $100 a barrel today, driven by fears that instability in Libya will continue to choke off that nation's oil exports.

It's clear that rising oil prices will translate into higher gas prices for U.S. consumers. But how high will prices go, and when will they come down? Here's an overview of what industry analysts are predicting.

USA Today reports that the average gas price in the U.S. could reach $3.25 this week; that's according to the Oil Price Information Service's chief analyst, Tom Kloza.

The same story includes an even grimmer prediction:

The U.S. economy, higher traditional consumption in spring and rising demand from China and other countries are likely to push gas to $3.75 to $4 a gallon by midsummer. Political upheaval in Saudi Arabia, Iran, Kuwait and the United Arab Emirates has energy markets braced for an even sharper run-up.

"If you are looking at the disruption of movement and production in countries such as Saudi Arabia and the UAE, you're easily talking $5 gas," says Peter Beutel, president of energy adviser Cameron Hanover. "We have all the wrong things working together at the right time: an economic recovery, (stocks) making new highs, a lower dollar, strong seasonal demand and unrest in the heart of oil production."

But Kloza told Daily Finance that he is skeptical of the $5 gas claim:

[He] "disagrees vehemently" with analyst predictions that gas prices could shoot above $4 or even $5 a gallon. ...

Kloza cites a good reason for why that seems unlikely: About 5.5 million barrels of excess capacity of crude oil are now available to drive prices down, of which the Saudis control 4.5 million barrels. And the Saudi oil minister rushed to assure the world on Tuesday that OPEC stood ready to raise output.

Other analysts told The Wall Street Journal that, Saudi assistance notwithstanding, the disruption in the world's oil supply will still be felt:

Libya's crude is of particularly high quality, and several analysts have said replacement oil from other countries is likely to be of the poorer-quality sour variety.

"A barrel-for-barrel replacement by Saudi Arabia of Libyan crude is a misnomer, since grades and quality differ and there are likely to be time lags for the former to bring their production online," Barclays analysts said.

Amy Myers Jaffe, director of energy research at Rice University's Baker Institute for Public Policy, told NPR that consumers will feel the pinch but predicts that $4 gas is more likely than $5:

I think the real critical question is, you know, how long are we all glued to our sets watching unrest in the Middle East? I mean, my opinion is if we're watching unrest in the Middle East still in May, that we're -- I think we're very likely to see, you know, $4 gasoline price. ...

To get the $5, we have to really, I think, have a major disruption that has to be sustained.

Think gas prices will drop as soon as oil prices return to normal levels? Think again, says En-Pro International senior consultant Roger McKnight. Blame "refinery creep," he told The Vancouver Sun:

"I call it 'up like a rocket, down like a feather' because that's the way the oil companies make their money," McKnight told me in a telephone interview.

"Normally for every dollar a barrel change in the price of crude, it works out to six-tenths of a cent price change at the pump. When the prices go up the oil companies go for the full amount and add a bit more to it. But when they come down, they tend to be a little bit less generous in their reductions than they are in their increases."

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