What Next After $4 Gasoline?

Roller coaster gasoline prices have us all guessing what’s next. Now at almost $4 a gallon, will the price rise continue or back off to the $2-3 range of last year? A one dollar increase in gasoline prices means a lot to the pocketbooks of suburban commuters as well as to the nation’s economy which sank into the Great Recession helped along by rising pump prices in 2008.

Energy and financial analyst Nicole Foss sees high volatility in oil prices until the terminal decline in world oil production begins in a few years which would cause prices to skyrocket.  The current price bubble is caused by speculators perceiving long term scarcity. She expects current gas prices to collapse to the lows of 2008 in the short run but ultimately exploding in a “moon shot” when demand far exceeds supply.

Demand is reduced as gasoline prices rise. Commuters buy smaller cars, hybrids, or all-electric cars. They work more at home, join car pools, take non-driving vacations, and move closer to work. At $4 a gallon U.S. consumers pay an extra $100 billion stressing an already weak economy. However, the demand drop in the United States is countered by demand increases in developing nations. Fatih Birol, chief economist of the International Energy Agency, sees oil prices fully justified by high demand and constrained supply.

Market analyst Peter Schiff talks of no end in sight for gasoline as it ultimately rises to $5, $6, $10... He foresees the dollar losing value and a decline in purchasing power as the Federal Reserve Board “prints” money to cover government expenditures in lieu of low tax receipts. As the dollar moves downward, oil goes up.

Hedge fund manager Jeremy Grantham writes of a paradigm shift as most commodity prices move from their 100 year downward trend toward higher values as our industrial civilization nears the limits to growth. Not only is there just so much oil, but also iron, coal, copper, silver, palladium...

In spite of the lack of Peak Oil warnings from our government, many communities are taking action by getting ready for oil scarcity and high gasoline prices. There are now 90 Transition Towns, Cities, Counties, and States in the country and 377 worldwide all dedicated to making their communities more resilient and self-reliant in the face of the energy, economic, environmental, and climate shocks of the 21st century. I am especially proud of my local group, , the 89th in the United States which is now presenting monthly films, talks and workshops to acquaint residents with local food, energy and transportation issues.

What’s next after $4 gasoline? By 2015 world oil production will likely begin its final decline according to a number of forecasters. If energy analyst Dr. Robert L. Hirsch is correct, a 2 percent decline in oil availability per year would be very difficult for the U.S. to handle and a 4 percent decline per year would be catastrophic. With 2008 as a guide when oil reached $147 a barrel, we can expect higher food prices, higher transportation costs, and higher costs for imported goods. In other words spreading poverty and a lower standard of living. 

However, by acting now we can improve the quality of life for our communities with more public transportation, less auto and truck pollution, bike paths and lanes, and community gardens. It’s up to you and your community to get ready for oil shortages ahead.