As of the time of this writing, the national average cost for gasoline is $3.55 per gallon in the US. When gas was below $1.00 the forecast was made by this author it would go to $3.00 per gallon. Now we have gasoline priced well over $3.00 per gallon, and I am now convinced that the cost of gasoline 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 examine 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, Peru, Argentina, Columbia, Turkey, Australia, Libya, Egypt, South Africa, Spain, France, Algeria, Yeman, Pakistan, 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 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 grow at a steady pace.

In the last 2 years alone, Brazil has lifted 20 million citizens from poverty to middle class. China and India have done ten times that amount. 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. This requires 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 case that these firms are too huge to go under and will be "rescued". They are too large to collapse because of the derivative packages that they have issued. 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 method 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 resume. The effect is a constant diluting 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 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 gasoline to drive your car?