Goldman Sachs:

SIX DOLLAR A GALLON GAS

1

This is all conjecture, understand? But we were talking over lunch about the continuing increase in the price of gasoline. That subject has everybody talking, right? Well, crude oil has just gone comfortably over $120 per barrel and we are well on our way to a national average price of $4 per gallon for regular unleaded gasoline. What is doing this? And where is it going?

Gas Sign 5-6-06 copy.jpg

Remember when gas was this cheap? May, 2006.

Weak Dollar
Since George W. Bush entered the White House, the value of the dollar has fallen 41%. This automatically makes the price of gasoline in dollar terms much, much higher. At dollar parity from the beginning of 2001, we would be paying $72 dollars for a barrel of oil and gasoline would be priced at between $2.25 and $2.50 using the equation from energytomorrow.org. EnergyTomorrow.org is brought to you by “The people of America’s Oil and Natural Gas Industry”. Their formula contends that crude oil is 72% of the cost of gasoline; refining, distribution, service stations, marketing is 16% (probably includes their profits as well); taxes are another 12%.
So, with gasoline being at a national average of $3.61 today, the weak dollar accounts for $1.36 of the cost per gallon.
Now, government policies determine the value of the dollar and even though President Bush and the Treasury state that they are in favor of a strong dollar, their actions have resulted in a weak dollar.
Crude Oil Prices
Sure, crude oil has just moved over $120 per barrel. Goldman Sachs Group was widely criticized in 2005 when they forecast a barrel of oil at $105. Now, they are talking about $150 per barrell by the end of the year. $150 would result in gasoline priced in the range of $4.90 to $5.10 per gallon. If the price per barrel rises to $200 per barrel a per gallon gasoline price of between $6.40 and $6.60 per gallon would be the result.
Big Oil?
We believe, although we have no proof, that Big Oil is also a major culprit. They do have some level of influence on the price of crude oil. After all, they drill for it, pump it, refine it and sell it. For the past half decade, it has appeared to us that Big Oil has been playing a psychological game with American drivers. They ratchet up the price of gasoline to $3.00 per gallon and everybody is pissed. Then they drop it back to $2.50 per gallon and everybody feels better. The next price peak is $3.25 and then it drops back to $2.75. The next price peak is $3.50 and then drops back to $3.00. See the pattern? Intentionally or not, they are psychologically conditioning us to higher and higher prices.


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