Will Gas Continue To Go Up?

The Great Recession is showing signs of passing, which means demand is increasing for everything including gas. This raises the question of whether gas will continue to go up in price?

Gasoline is the great elixir of modern civilization. For all our gadgets and conveniences of life, it is the yellow liquid made from the blackest of oils that makes our world work. Don’t believe me? Imagine going a week without your car. How would you get to work? How about running errands? How would you get food? It would be a complete mess and civilization would pretty much come to a grinding halt. Gasoline and oil are that important.

The price of gasoline has been going up over the last seven plus years pretty dramatically. The average price of a self-serve gallon of gas in March of 2003 was $1.18 in the United States. The early summer of 2008 saw it explode to over $5 in Southern California. As a person living in San Diego, I can tell you it was very painful financially. Prices dropped with the lack of demand during the monstrous recession, but they’ve started edging back up.

So, will gas continue to go up? Yes. There will obviously be fluctuations, but the general trend will be up. Why? There are two reasons. The first has to do with the dollar. The second has to do with the fundamental concept of capitalism – supply and demand. Let’s take a closer look at both.

The dollar is not doing so hot. The United States is carrying 11 trillion in debt and this number is expected to go up vastly in the next 20 to 30 years. No, it isn’t Obama that is the problem. It is demographics. We have a population bulge know as the Baby Boomers. They are hitting their golden years, which means they need medical care and money from social security. The problem is huge and investors are looking to safe investments. Nothing is safer than oil, the fossil fuel every first world country is built upon. The result of investors buying oil commodities is higher prices. This, however, will fluctuate wildly over the years. The long term upward trend is based on another issue.

The single most fundamental concept of capitalism is supply and demand. When there is more supply than demand, prices drop. When demand outstrips supply, prices shoot up. The problem is that the current world wide demand nearly matches the supply. The world uses about 84 million barrels of oil a day. World wide production is about 84.5 million barrels a day. The problem is demand is expected to continue to grow and all the “easy” oil has been tapped.

We are not running out of oil per se, but the remaining oil is much more difficult to get at. They’ve found oil in the Caribbean, but the price for just one rig to get at it is $6 BILLION dollars. The same problem applies to shale oil. There is plenty of it around, but the cost to produce it is much higher than we are used to paying now. This effectively means that fuel prices will continue to rise over time.

Will gas continue to go up? Well, consider this simple fact. The world produces 84.5 million barrels a day in 2009. World wide demand per day in 2020 is expected to be 119 million barrels a day according to the Energy Information Administration. It is a safe bet that prices will increase.

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