Why The Price Of Gas Is Going To $6.00 Per Gallon

As of the time of this writing, the national average price for gasoline is $3.55 per gallon in the US. When gas was below $1.00 the prediction was made by this author it would climb in price to $3.00 per gallon. Here we are with gasoline priced well over $3.00 per gallon, and I now predict that the price of gas will reach $6.00 per gallon in the United States in 2009.

Not much can be done to stop that from happening. To understand why, we need to examine the causes of the price rise. There are three: demand, supply, 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, Russia, Mexico, Iran, Argentina, Peru, Columbia, Turkey, Australia, Libya, South Africa, Egypt, Spain, Algeria, France, Pakistan, Yemen, and several other countries.

However, not every country has reached peak. Some experts believe that Saudi Arabia will not reach peak production for a few more years, while others believe Saudi Arabia is at peak already. Regardless of which analyst is correct, Saudi Arabia is nearing 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 grow at a steady rate.
In the last 2 years alone, Brazil has lifted 20 million citizens from poverty to middle class. China and India have done ten times more. All these new middle class consumers desire lifestyle enhancements common to the middle class: more meat in their diets, better homes, and a means of personal transportation for frequent travel. This requires more energy.

If supply and demand 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 ceasing to function properly 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 situation that these firms are too big to go under and will be "saved". They are too large to fail because of the derivative packages that they have created. If one of these giant firms fails, all of their derivative contracts also fail. That would create a domino effect throughout the world, and the world's financial system would instantly freeze up.

The Federal Reserve has no alternative 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 firms. 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 continue. The result is a constant weaking of the value of the dollar.

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

Based upon what is happening 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 buy 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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