$6.50 a gallon gas on horizon?

[cyberdude558]

A dollar plumbing three-year lows is hitting Americans squarely in the gas tank, and one economist thinks it could drive prices as high as $6 a gallon or more by summertime under the right conditions.

With the greenback coming under increased pressure from Federal Reserve policies and investor appetite for more risk, there seems little direction but up for commodity prices, in particular energy and metals.

Weakness in the US currency feeds upward pressure on commodities, which are priced in dollars and thus come at a discount on the foreign markets.

One result has been a surge higher in gasoline prices to nearly $4 a gallon before the summer driving season even starts, a trend that economists say will be aggravated as demand increases and the summer storm season threatens to disrupt oil supplies.

"All we have to have is a couple badly placed hurricanes which could constrain some of the refinery output capacity in some key locations," says Richard Hastings, strategist at Global Hunter Securities in Charlotte, N.C. "If you get weakness in the dollar concurrent with the strong driving season concurrent with the impact of one or two hurricanes in the wrong place, prices could go up in a quasi-exponential manner."

Hastings sees gasoline having "no problem" getting to $6.50 a gallon over the summer after increased demand and storm disruptions come into play.

Others, though, say gasoline prices haven't needed any help so far from other events—the moves by the Fed to keep interest rates in negative real terms are enough to boost energy by themselves.

Michael Pento, senior economist at Euro Pacific Capital in New York, says there is an almost perfect negative correlation between the falling dollar and oil prices—minus-0.9 to be exact.

"When you have negative correlations that strong, it's not hard to understand that the reason why we're having this price spike in commodities is primarily because of the weaker currency and not because of shortages of oil or international tensions or global growth," Pento says.

The assertion from Hastings that the weak dollar is responsible for one-third of the total cost for a gallon of gas "sounds very low," Pento says, adding that a barrel of oil should be closer to the $65 to $70 range if priced properly.

"That's exactly where it would be if we weren't crumbling our currency," he says.

Should events follow their current course, sharply higher gas prices will burden consumers further as they also cope with the rise in food costs this year.

http://www.cnbc.com/id/42683030

[Fitz66]

As long as articles are being written that say it will happen - it will happen.

[JDog]

Considering what Obama has done to the value of the dollar, where the currency exchange rate with these forgein countries where we import oil from has dropped by about 50%, 6.50 is only equivalent to about 3.50 when he took office.   So the price wouldnt have changed much.

[John Galt?]

$6.50/gallon on the horizon??

That isn't the horizon, it's a cliff edge.

[dbucfan]

Don't worry, Barry is investigating.  Not allowing drilling or refining expansions - but he is on it.  If someone other than a politician is getting paid off it is going to be hell for them...