US economy strong enough to support soaring gas prices?

Political unrest in Egypt produces highest prices of the summer


This is a rush transcript from "Your world," July 12, 2013. This copy may not be in its final form and may be updated.

ERIC BOLLING, GUEST HOST: Between Egyptian unrest and pipeline protests, are drivers facing a real pain in the gas this summer? Gas prices jumping three pennies overnight, something we haven't seen in months.

To former Shell Oil president John Hofmeister and money watcher Scott Martins.

John, let's start right off the top. I looked up the other day and I saw oil $107. I can't believe that we're back above $100 a barrel. What's going on in the oil market?

JOHN HOFMEISTER, FORMER CEO, SHELL: Well, it's been about a year, almost a year-and-a-half since we hit that price.

Eric, what is going on is a couple of things. You hit the one. There's the political volume volatility in the Middle East always adds a bit of pressure to the price, particularly when the unexpectedness of what happens just makes its worse.

The Keystone pipeline, the failure of the United States government to be able to make a decision after five years of study is adding to the futures issue of the availability of oil. But what is really underlying this most recent price rise is the fact that we now have some new infrastructure that brings oil from Oklahoma to Texas that we didn't have before.

And we're really getting the U.S. up to a global price. So, what Americans are now having to pay for is what the rest of the world has been paying for along. We were constrained.

BOLLING: Sure. Right.

Right, because if prices over there are up here and prices over here are here, eventually, you realize the cost to transport it over there makes up the difference. It brings those prices in line.

Scott, let me go to you very quickly. I have done this a long time. The oil seems to have a mind of its own at times. Everything we read, that there's enough oil around, there's enough oil in the market, the global markets, yet the price continues to go up. Path of least resistance or true supply and demand pushing prices higher now?

SCOTT MARTIN, UNITED ADVISORS: Probably path of least resistance, Eric.

And I'll tell you, one thing that we have blamed in the past is the traders, right? Remember, we used to get after them, at least the government did, as blaming them for the fault of this.

Listen, I think the point is pretty well made, though, Eric. Demand is up year after year, and so the price can only go as far as the demand is going to take it. So as you see prices maybe going into the $110s, demand will likely suffer and prices well come down. Certainly, to John's point, though, yes, the Keystone pipeline was a major blow. No surprise the government did so long of a due diligence report on it and then didn't actually act on it. Big deal.

That obviously pushed prices a little bit higher, but I think that will get, say, sucked out of the market here as we get into fall driving season.


BOLLING: John, let me ask you, what is more important, getting more oil, Keystone pipeline, or getting more refining capacity?

HOFMEISTER: I think getting more refining capacity, but not just for oil, Eric. Let's get natural gas. Let's get an alternative into the fuel mix, so that we have competition, natural gas fuel or oil fuel. Americans would be better off by increasing the capability to build an alternative fuel to gasoline.

BOLLING: Yes. And, John, we just want to point out, there were some protests yesterday in Washington, D.C. I think the president was attending a fund-raiser, and we have a little tape there. There are protesters protesting him. They want the oil to start to flow.

Scott, let me talk to just very quickly -- 15,464 -- OK, they're telling me -- I'm sorry. They are protesting that they don't want the oil pipeline. My bad. That was my mistake.

Scott, talk to me a little bit about stock market. The stock market doesn't seem to care that there's $106 barrel of oil out there. Another record high today, 15,464. Thoughts?

MARTIN: Isn't it funny, Eric? It's actually like a correlation issue with the stock market. As oil prices go up, so do stock prices, when you think that would be counterintuitive.

The reality is the S&P 500 is comprised of some very big oil companies that tend to move the index, so as you see oil prices go up, that tends to help these companies and that pushes up the prices.

BOLLING: Or, John, is it that there's so much money floating around, it's pushing, inflating everything, whether it's a stock or a barrel of oil?

HOFMEISTER: Well, there's a lot of money out there that is looking for some way to get a return, because I don't think the underlying economy is strong enough to really support either the oil price or the share prices.

There's a pretend economy and there's a real economy. I don't think the real economy is as strong as the aspirational economy.

BOLLING: All right, we're going to leave it there, John Hofmeister and Scott Martin. Thank you, guys. All right.

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