Rising Gas Prices: Why It Isn’t Going To Let Up…

| December 29, 2010 | 0 Comments

My family and I took a road trip to the Los Angeles area to visit family last week.  The drive was a nice get-away from the dry desert landscape of Phoenix to the California coast.

I made a startling discovery during my little road trip…

Driving in the LA area is a nightmare.

I used to think traffic in Phoenix was horrible.  But driving in LA makes Phoenix seem like a scene out of Driving Miss Daisy.

At one time, I saw seven lanes of cars sitting at a standstill for as far as I could see.  Maybe to the average LA commuter it’s no big deal.  But to someone like me, the sight was a bit nauseating.

Thankfully I was travelling the opposite direction and I missed the congestion.  Otherwise, I would’ve been banging my head on the steering wheel.  (I don’t do well in traffic…)

The sight of thousands of cars in bumper-to-bumper traffic got me thinking about how reliant we are on gasoline.

And it made me wonder where the price of gas is going in coming years…

Some analysts see prices falling.  These experts say gasoline demand has been declining since 2006.  And many expect it to continue falling in years to come.

They say demographic shifts along with policy changes will play a large part in reducing the amount of gas America uses.  Even the ex-CEO of Exxon Mobil (XOM) says gasoline demand has peaked for good.

These trends have some proclaiming gas prices are set to fall in coming years.

Sounds great, right?

Before you rush out to buy a Hummer, listen to the other side of the story.

The ex-president of Shell (RDSA) says Americans could be paying $5 a gallon for gas by 2012.  According to him, surging world oil demand will push gas prices higher than ever within two years.

He goes on to say America will be gripped by another 1970’s style energy crisis within the next decade.  The crisis will bring physical rationing of gasoline along with sky-high prices.

Wait a second…

Two oil industry experts are predicting completely different outcomes for gasoline prices.  One says prices will trend down, while the other says prices will shoot to the moon.

Who do you believe?

Unfortunately, I think the ex-president of Shell is correct…

Gas prices are likely to keep trending higher due to rising global oil demand.  After all, oil is a globally priced commodity… not regionally priced.  Demand on the other side of the world has an effect on prices on this side of the world.  And right now Asian oil demand is surging.

The facts should be painfully obvious…

Even though gasoline demand has declined by around 8% since 2006, gas prices are 41% higher.  According to Gasbuddy.com, the US average retail gas price is currently $3.04.  Back in 2006, the average price for the end of December was around $2.15.

Gasoline prices aren’t solely based on supply and demand curves for gasoline…

In fact, gasoline prices are based on the price of the underlying commodity… oil.  And with steadily rising demand for oil from countries like China and India, you can bet you’ll be paying more at the pump in coming years.

Hopefully, it won’t turn into another energy crisis like the 70’s.  But if it does, you certainly won’t find me making a road trip to LA.

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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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