Why Is The Price Of Gas Skyrocketing?

Unless you have been either living under a rock for the last 6 months, or have not had to fill your car up you will most probably be painfully aware of the fact that gas/petrol/diesel prices are going through the roof. Every single day we seem to see the price of fuel go up- in the last month alone the average US price rose by 23 cents a gallon.

So what is driving the skyrocketing cost of gas for the average commuter? Here is a simple dissection of the factors which are compounding to make driving such an unpleasant business at present:

1. Middle East tensions- There is a twofold implication of the current tensions in the Mid East and Northern Africa on oil prices. Firstly, there is the speculative side of things; with the threat of production being stopped or slowed a risk premium develops which drives up the price of oil. Secondly, supply has been virtually stopped from Libya, and Libyan crude is of extremely high quality. If protests continue to Saudi Arabia expect oil prices to top $200 within days, and if supply is actually affected then it is "game over" as far as we know it.
2. Weakening US Dollar- Due to poor economic performance in the United States, as well as an increasing supply of US dollars the role of the currency as a global reserve and "flight to safety" is being eroded. Oil is priced in US dollars- it now takes more US dollars to buy the same amount of things, including oil, as each dollar is worth less.
3. Peaking Supply Factor- Whether you believe in peak oil or not there is good evidence to suggest that a number of prominent fields around the world with easily accessible and high quality crude are in a state of production plateau, or even decline. Yes there are lots of other reserves, but the difficulty is getting them out economically. Liken it to having $2 million- $1 million in cash, the other $1 million in an account that you can only have $100 a day. Once that one million cash is gone you will never live like a millionaire on the other million that can only be drawn out in smaller quantities.

Those three factors mentioned above have combined to unleash a maelstrom upon the motoring public. There is only so far you can cut your fuels consumption before your standard of living is really affected, so personally I would recommend learning how to make your own car fuel.