As of the dayof this writing, the national average cost was under $1.00 the forecast 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 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 causes of the price rise. Basically 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, Australia, Turkey, Libya, Egypt, South Africa, 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 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 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 steady, demand continues to rise at a steady 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 that amount. All these new middle class consumers desire lifestyle enhancements typical to the middle class: more meat in their diets, better 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 substantially, 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 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 huge to fail and will be “saved”. They are too big 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 cause a domino effect throughout the world, and the world’s financial system 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 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 created in bailout money in the United States. This will continue. The result is a constant diluting of the value of the dollar.

When currency is created 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 currency that has already been created 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 unfolding right now, $6.00 gasoline in the US in 2009 is better than an even bet. What good is cheap auto insurance if you cannot afford to supply the fuel to drive your automobile?