Gasoline prices are headed for $5 a gallon in many locations in the United States this year, says John Hofmeister, founder of Citizens for Affordable Energy and the former CEO of Shell Oil’s U.S. operations.
Global demand will rise and pressure supply, while U.S. politicians aren't doing anything to ease prices at home such as allowing for significantly more drilling.
"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 tells CNBC.
"So while we may be producing a bit more oil in this country, and while demand is down a bit, on a global basis, I'm afraid we face a continuing onslaught of prices creeping ever higher," Hofmeister says. "I hope I’m wrong on this. I'd love to be wrong on this."
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The Obama administration has allowed for more drilling to boost supply although red tape often prevents those projects from getting off the ground.
Furthermore, by halting expansion of the Keystone pipeline project from Canada into the United States, the Obama administration further missed an opportunity to increase energy supply, while natural gas production needs to increase as well.
"We have not had the kind of public policy support for domestic natural resource production increases that would carry through into market prices in the United States given the global demand and geopolitical uncertainty that comes out of the [Persian] Gulf daily," Hofmeister says.
Prices may start causing some pain well before summer, or even before Spring Break.
The average price for regular gasoline at U.S. filling stations rose 11.57 cents to $3.5101 a gallon in about three weeks, according to the Lundberg Survey, Bloomberg reports.
Blame refinery closures and downtimes in the United States and in the Caribbean on top of seasonal hikes, while Iran's threats to close the Strait of Hormuz and crimp the world of a crucial supply line has pushed up Brent crude prices, a key unit for European consumers but a driver for energy markets worldwide.
"It is a fact that refiners are more sensitive to what European grades of crude such as Brent do than WTI," Trilby Lundberg, president of Lundberg Survey, tells Bloomberg, referring to West Texas Intermediate, a U.S. crude.
"We are seeing strong dynamics in the crude oil market beyond our shores."
Iran factor
Some experts say should tensions between Iran and the West escalate to the point that the Islamic republic comes closer to developing nuclear weapons and Israel attacks it, oil could shoot up as high as $300 a barrel.
George Friedman of the private-intelligence Website Stratfor, gives the odds of Israel attacking Iran's nuclear technology sites at 25 percent.
An attack would require U.S. military assistance and money — unlikely in an election year.
Plus, Iran's nuclear installations are underground and well-concealed.
High-tech defense systems protect them as well, and if attacked, Iran would likely make good on closing the Strait of Hormuz as well as take out oil tankers in the area.
"In such a circumstance, Israel would find itself as isolated from much of the world as Iran is presently," Friedman tells Barron's.
"Israel may regard a nuclear-armed Iran as an existential threat, but that's not necessarily true of the U.S., EU or most other developed nations. Oil priced at $300 a barrel would be a heavy price to pay for delaying Iran's crossing the nuclear arms threshold by a mere couple of years and giving Israel temporary peace of mind."
Should such a nightmare scenario play out, it would be tough to say how high oil prices would climb, but they wouldn't stay sky-high for long as demand would plummet, others say.
"We would certainly go to a rationing point. I don't think anybody could predict how high we would go and how long we would sustain there. The only break on prices not staying at that level is that every 50 cents up on petroleum prices takes almost $150 billion or almost 1 percent out of GDP," Joe Petrowski, Gulf Oil CEO, told CNBC when asked about the possibility of oil approaching $300 a barrel.
"As you approach $4 or $4.50 you are going to see a consumer that severely cuts back."
Still, expect gasoline prices to climb as the summer driving season approaches.
"With the refinery closings on the East Coast and in the Caribbean and with some financial problems with refineries in Europe, and really nothing we are doing about dampening demand or switching to natural gas in the U.S. and now we are hearing natural gas wells are being shut in, I think we are going to approach $4 this summer," Petrowski says.
On a more refreshing note, the International Energy Agency, meanwhile, says global oil demand will grow by less than 1 percent in 2012, according to Reuters.
The agency has trimmed its growth forecasts several times this year due mainly due to Europe's troubles.
"This month's report dwells on recent economic downgrades, and resultant weaker oil products demand growth for 2012," the IEA says in a monthly report, according to Reuters.
