The head of the world’s largest publicly traded oil company said that in 2008, when oil surged to near $150 per barrel, Americans didn’t change their driving and spending habits until gasoline prices topped $4 per gallon. Average gas prices peaked at $4.11 in July that year.
“I don’t know if that tip-over is still at the same $4 level or not,” Tillerson told reporters at the New York Stock Exchange. “We’ll see.”
Oil is now about $104 per barrel after rising more than 20 percent over three weeks because of civil unrest in Libya. Tillerson hasn’t seen any reduction in the demand for fuel from consumers or businesses.
The national average price for a gallon of gas has increased 40 cents to $3.52 in the same period.
Drivers on the West Coast are already paying close to $4, however, and prices are expected to rise through spring and summer.
Gas at $4 a gallon “creates some real challenges” for average American families and their household budgets. When the price rises above that, it’s a “significant emotional event for a lot of people,” he said.
“Even if you’re paying $50 a month (for gas), $50 a month is significant for the way they have to manage their income.”
Tillerson remembered that in 2008, many Americans switched to taking the bus or joining community carpools to save on gas costs.
Tom Kloza, publisher and chief oil analyst at Oil Price Information Service, said Americans forced to live paycheck to paycheck already are cutting back on driving. And not just in the West.
The difference between now and 2008 is that many motorists remember getting burned by high pump prices, Kloza said. They’ll conserve now with the expectation that gasoline will hit record levels this year.
“I think they’re wrong to assume it’ll get that high,” he said. Kloza has predicted the national average would peak at $3.75.
Many analysts think benchmark West Texas crude would have to rise at least another 10 percent to $115 or $120 per barrel to force a significant change in consumer spending. Some economists think oil rising to $150 or more per barrel and staying there for months could trigger another recession.
Output in Libya, which is a member of petroleum export group OPEC, has dropped significantly as rebels battle the government of Moammar Gadhafi for control of the country. Analysts are concerned the unrest could spread to bigger producers in the region like Saudi Arabia.
Tillerson pinned the rise in oil prices on the perception of future shortages rather than actual problems. He said traders are pricing in a “risk premium” to account for Libya’s political situation. Oil executives in both Saudi Arabia and the U.S. have made similar statements.
At an energy conference in Houston, Youcef Yousfi, the Algerian Minister of Energy and Mines, said, “There is no shortage of oil in the market.”
“When people see that the supply is at a normal level, the price will go down,” he said.
Tillerson said Exxon Mobil Corp. was recently forced to stop buying Libyan oil because of U.S.-imposed sanctions, yet the company didn’t have trouble finding other sources of crude.
“And we’re unaware of anyone who is having difficulties.”
Earlier, the CEO told Wall Street analysts that Exxon would spend nearly $100 million per day over the next five years on capital investments, mostly devoted to oil and natural gas production. Capital spending will range between $33 billion and $37 billion annually between 2011 and 2015, he said. At those levels, Exxon’s oil and natural gas volumes should grow between 4 percent and 5 percent until 2014.
Another major disruption in global supplies could still send prices leaping higher. But so far, “I’m not concerned about the ability of producers to meet the market’s demand.”
AP Energy Writer Jonathan Fahey contributed to this report from Houston.
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