Why The Cost Of Gasoline Is Going To $6.00 Per Gallon

As of the day of this writing, the national average price for gasoline is $3.55 per gallon in the US. When gasonline was under $1.00 the forecast was made by this author it would climb in price to $3.00 per gallon. Now we have gasoline priced well over $3.00 per gallon, and I now predict that the price of gasoline will top $6.00 per gallon in the United States at some point during 2009.

Not much can be done to stop that from happening. To understand why, we need to look at the factors that are the causes of the price rise. There are three: supply, demand, and the value of the currency.

Supply is near or at 100% of capacity. There is only so available. In recent years reductions in daily output have occurred in the United States, Mexico, Russia, Iran, Peru, Argentina, Columbia, Turkey, Australia, Libya, Egypt, South Africa, Spain, Algeria, France, Yeman, Pakistan, and several other countries.

However, not all countries have reached peak. Some experts claim that Saudi Arabia will not reach peak production for a few more years, while others claim Saudi Arabia is at peak already. Regardless of which analyst is correct, Saudi Arabia is getting close to peak. Brazil, Venezuela, and Iraq have yet to reach peak oil output. However, the amount of spare capacity available in countries that have yet to reach peak oil production does not exceed the declines experienced in countries experiencing declining oil production.

While supply remains constant, demand continues to rise at an alarming rate.
In the last 2 years alone, Brazil has raised 20 million of it’s population from poverty to middle class. China and India have done ten times more. All these new middle class consumers want the lifestyle enhancements typical to the middle class: more meat in their diets, improved homes, and a means of personal transportation for frequent travel. All of those items require more energy.

If supply and demand figures were not enough to cause energy prices to rise significantly, there is another factor as well: the value of the US dollar.

The global financial system is freezing up and crumbling as a result of the derivatives abuse mixed in with the subprime mortgage crisis. The Federal Reserve has already stated in the recent Bear Stearns case that these corporations are too huge to go under and will be "rescued". They are too big to fail because of the derivative contracts that they have created. If one of these giant firms fails, all of their derivative contracts also fail. That would cause a domino effect throughout the world, and the world's financial system would instantly seize up.

The Federal Reserve has no choice but to continue to bail out investment banks. And the system of "rescue" is to create money out of nothing and loan it into existence to these corporations. In the past several months alone, over a quarter of a trillion dollars have been produced in bailout money in the United States. This will resume. The result is a constant diluting of the value of the dollar.

When currency is produced out of nothing and injected into an economy, it takes a while for the watered down process to occur. The lag time is usually 5 to 8 months. Therefore, the money that has already been produced in the spring of this year will promote the negative results to be felt in the fall and winter of this year.

Based upon what is unfolding right now, $6.00 gasoline in the US in 2009 is better than an even bet. What good is %LINK1% if you cannot afford to supply the fuel to drive your car?

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J Stromsteen has many years experience in the finance, real estate, and insurance industry. Besides her own website, Cheap Auto Insurance, she contributes to the website Bush's Depression as well as first time home buyer to provide up to date information on the unfolding real estate and financial crisis.

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