Oil Prices: The Falling Dollar Is Boosting The Price At The Pump

| May 4, 2011 | 0 Comments

Like most Americans, I make frequent trips to the gas station.

In fact, I just filled up my gas tank this morning.  And after watching the price spin higher on the gas register, my head started to hurt.  Maybe it was gas fumes, but it was more likely the sticker shock of the final bill.

You see, my local filling station just hit $3.95 a gallon… for regular gas.  I drove away with my credit card gasping for air due to its lashing at the pump.

Ok, I’m exaggerating a bit, but you get the point…

High gas prices are turning into a huge headache for us all.

According to Gasbuddy.com, the average price for a gallon of regular gas in the US is now $3.92.  We’re quickly approaching the US all time average high of $4.12 hit in the summer of 2008.

I don’t know about you, but forking over that much for a gallon of gas isn’t much fun.

I’m like a lot of Americans who’ve grown accustomed to cheap gas over the years.  And with gas prices closing in on all time highs, we’re all growing a little nervous.

I’m sure the question on many people’s mind is…

“How high will gas prices climb this time?”

It’s a great question.  But before we look at how high prices might rise, let’s look at what got us here in the first place.

The first and most obvious reason is geopolitical fear in the oil market…

If you’ve been watching the news lately, you know about the unrest in the Middle East.  The fear of supply constraints from the region lit a fire under oil prices.  Before all the chaos started, oil was trading in the high $80 per barrel range.

But recently, oil climbed over $112… a substantial fear premium.

The funny thing is we’re not hearing much about new unrest in oil producing nations.  The conflict in Libya is ongoing, but supply fears out of this relatively small oil-producing nation were priced into the market some time ago.

Now, as Middle East tensions cool, oil prices should start easing back down.  The theory is certainly valid, but so far no luck.  Oil prices are still pushing higher.

What’s driving oil to these heights?

Well, this leads us to the second and more hidden reason for oil’s rise.

The slow and steady drubbing of the US Dollar…

   As you can see, the dollar is enduring a steady but dramatic fall from grace.  And since oil has a strong inverse correlation to the dollar… gas prices are surging.

Some analysts are even suggesting gas may surge to the $6 range this summer…

A weak dollar, along with a well-placed hurricane in the Gulf of Mexico, may push gas to all time US highs.  Obviously, $6 gas would be a highly unwelcome surprise this summer.

Is there anything you can do to protect your pocketbook from a nightmare scenario like that?

Well, a fuel-sipping car is a great start to avoiding headaches at the gas pump.  While this isn’t exactly unique advice, it’s the only way I know of to ease the pain at the pump unless you ride a bike… or walk.

If you’re not quite ready to pull the trigger on a hybrid car, you may want to consider investing in the next generation of transportation…

There are a slew of great companies working hard to make electric vehicles a reality.

Take Johnson Controls (JCI) for an example…

The company is a leading player in the US lithium battery and hybrid vehicle drive market.  Their deep automotive industry experience makes them a frontrunner in the emerging electric vehicle industry.

JCI recently reported fiscal Q2 earnings rose 29%.  They also raised their full year revenue guidance.  You may want to consider picking up shares of JCI for your portfolio.

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Category: Commodities

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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