Gasoline To Reach $6.00/gallon Next Year
Tuesday, April 29th, 2008 Subscribe To Our Feed
As of the timeof this writing, the national average gas was under $1.00 the forecast was made by this author it would go to $3.00 per gallon. Here we are with gasoline priced well above $3.00 per gallon, and I now predict that the cost of gasoline will reach $6.00 per gallon in the United States in 2009.
Not much can be done to prevent 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 much oil that can be pumped out of the ground. 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, France, Algeria, Pakistan, Yemen, and several other countries.
However, not every country has reached peak. Some analysts 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 in those countries yet to reach peak oil production does not exceed the declines experienced in countries experiencing declining oil production.
While supply remains steady, demand continues to rise at an alarming rate.
In the last 2 years alone, Brazil has lifted 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 desire lifestyle enhancements common 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 were not enough to cause energy prices to rise significantly, there is another factor as well: the value of the US dollar.
The world’s financial system is ceasing to function properly as a result of the subprime mortgage crisis mixed in with derivatives abuse by Wall Street. The Federal Reserve has already stated in the recent Bear Stearns situation that these corporations are too big to fail and will be “saved”. 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 create a domino effect throughout the world, and the world’s financial structue would instantly freeze up.
The Federal Reserve has no choice but to continue to bail out investment banks. And the method of “rescue” is to produce currency 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 continue. The effect 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 currency that has already been produced in the spring of this year will cause the negative results 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 greater than an even bet. What good is cheap auto insurance if you cannot afford to supply the fuel to drive your automobile?
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