Home | Finance


Why The Cost Of Gasoline Will Exceed $6.00 Per Gallon

By: Jennifer Stromsteen

As of the time of this writing, the national average price for gasoline is $3.55 per gallon in the US. When gas was under $1.00 the prediction was made by this author it would climb in price to $3.00 per gallon. Now we have gasoline priced well above $3.00 per gallon, and I now predict that the price of gas will reach $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 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, Russia, Mexico, Iran, Peru, Argentina, Columbia, Turkey, Australia, Libya, South Africa, Egypt, Spain, Algeria, France, 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 now. 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 in those countries 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 pace.
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 that amount. All these new middle class consumers want the lifestyle enhancements common to the middle class: more meat in their diets, better homes, and a means of personal transportation for more distant and 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 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 corporations are too big 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 huge firms goes under, all of their derivative contracts also fail. That would create a domino effect across the world, and the world's financial structure would instantly freeze up.

The Federal Reserve has no choice but to continue to bail out investment banks. And the system of "rescue" is to produce 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 continue. The effect 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 watered down 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 greater than an even bet. What good is %LINK1% if you cannot afford to supply the gasoline to drive your car?

Article Source: http://www.articlesinsight.com

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.

Please Rate this Article

Not yet Rated

Click the XML Icon Above to Receive Finance Articles Via RSS!
Additional Articles From - Home | Finance
Sign Up for a free account or learn more.
Member Login
Submit Articles
Top Authors
Most Popular Articles
Submission Guidelines
Article RSS Feeds
New Stuff
About Us
Site Blog
Links
Link to Us
Contact Us
Privacy Policy
Terms of Service
Sitemap
articlesinsight.com » Copyright © 2006
Links | Terms of Service | Submission Guidelines | Contact Us | Improve google rankings| Privacy Policy | About Us

Powered by Article Dashboard