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Former Shell CEO on the Decline in Oil Prices

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    Former Shell CEO John Hofmeister on the factors driving the price of oil lower.

  • Duration 5:25
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Some good news for you this Memorial Day weekend and I'm talking about less pain at the pump.

The average price of gas now three dollars and 67 cents that's twelve cents cheaper than this time last year.

Oil accounts for two thirds of the cost of a gallon of gasoline.

In oil prices this week fell below ninety bucks a barrel for the first time in seven months.

How long can the trend continue John -- -- is the founder and CEO of citizens for affordable energy.

He is also the former CEO of Shell Oil -- -- -- -- -- there -- two about the topic.

John I have to start with this you've been on our show many times and most recently predicted that gas prices could go to five bucks what happened.

That was all based on 3% average economic growth from December of 2010.

And -- this summer.

Obviously we're -- the economy stating it's not achieving that 3% growth that we have an oversupply.

So we have an oversupply that's the flip side of lower gas prices is it means that your economy is not doing well so it's a bad news to a good news scenario.

We see for oil prices going forward do you think they're gonna go down further.

I think we'll test that the coming weeks Greece is a big question here Europe is very very weak Barry I don't think we're seeing any positive growth out of Europe right now.

China's slowed but for five percentage points from its peak but few years ago and where what are we struggling around 2% or less for economic growth.

So we could see prices break below ninety in the next -- say several three months.

But something has to happen also.

With the saudis the saudis have been over producing.

Because of the sense of shortage.

Requested by many many nations to keep producing they also wanted to pay back the hardliners who a year ago refuse to agree to a production increase.

So they're probably up a million and a half almost two million barrels today.

And when the price gets down below ninety they're gonna have probably cut back production reason was that -- well means we will have an artificially high price.

Because the saudis who have cut back a bit because they have a huge social costs to pay for which they committed to their population after the Arab Spring broke out.

Ari -- I would wanna talk about this which I think most.

-- retail gas users think about every day that price of oil plummets falls dramatically we're seeing huge declines.

Wife and my gas prices declining and falling implementing the same ounce.

In the industry it's called up like a rocket down like a -- down like a -- and so because the margins are so slim at the retail station on gasoline.

That the gasoline station operator the owner we'll try to make a little bit up on the downside because they never know when the price is gonna spike again and they suddenly have to.

Lose their margin to -- the next thank would've guessed.

Well I've spoken some of those -- and that's exactly what they say it's all about what's going on on the street.

There's almost it is a disconnect really between the price of oil in the price of gas because there -- other pressures that play.

Could we see gas prices float higher anytime soon and is an all connected to how well -- worldwide economy is doing.

What really disturbs me is and here we go again as what everybody in this in the industry says.

All the politicians scream bloody murder as the price rises.

What do they do about it absolutely nothing and out the prices falling they'll do absolutely nothing against that it that when we do see economic growth return.

They're -- gas prices straight back up and we'll have people yelling -- speculators are are are driving the price up which is just total nonsense.

But the politicians have got to get their act together because they are the enabler of a comprehensive energy approach which could produce more domestic product and we need more domestic.

Probably more domestic product and I think it's it's fair to say that.

It -- both sides neither side has a really clear view on -- do a better energy policy would use -- energy -- policy that it should be.

For transportation.

Five steps five steps would take us off OPEC forever one.

Return to ten million barrels a day production in this country were down around seven we used to do -- let's go back to -- -- there ways that it's available there government restricts us from accessing it.

Number two start using natural gas for compressed natural gas for trucks.

Displaced two million barrels of oil with natural gas.

Cars let's use natural -- to make methanol also use coal to make methanol.

Methanol -- displace not at all like ethanol is -- like another what's another route that I do yes no it's another alcohol fuel and that's not using food product to make.

Fuel it's using natural gas or coal to make -- and all.

And you can put it in a flex fuel engine are it then that so we're up to fifteen million barrels a day equivalent in the country that needs to funny.

Then we need to have higher mileage efficiency on our vehicles we saved two million barrels today over about ten years.

By won't buy ten years from now and then we get the rest of the oil when you from Canada and Mexico.

We're done we're out of OPEC favors people like it's people who -- -- -- -- radical that it's easy to get their product from their house starts with the North American Free Trade Agreement.

There's no duties -- -- you say anything about the Keystone Pipeline.

Keystone is going to be approved after the election this is pure political play that note nobody with common sense.

Would turn down the keeper Keystone Pipeline but politician -- I'd like I don't comments that's.

Yeah I think we established that earlier in the congress that he set up John thanks for coming on tonight it's always a pleasure to have thank you said -- be here.

Have a great week and a great holiday weekend.

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