After filling up my tank early this morning, I couldn't help thinking it was July. And to be honest, if the weather wasn't hovering around 30^o F, I probably would have checked a calendar.

If you haven't noticed, prices at the pump have been rising so far in 2008. According to the Energy Information Agency's (EIA) petroleum report, the average price for gasoline last week was $3.13 a gallon.

Although I was paying slightly more than the average price, the fact that we're paying over $3 a gallon during the winter doesn't paint a good picture for the summer of 2008, especially considering pump prices have increased over 31% compared to last year.

Now, I'm just talking about prices in the U.S. I've heard a lot of horror stories coming from my readers across the Atlantic.

So my question to you is, "What's your breaking point?"

The fivefold increase in oil prices over the several years hasn't been able to lower demand. Lately I've had several people preaching to me that oil would significantly fall in 2008. The first thing they would do is point at the growth in U.S. oil inventories over the last month and a half. Sure, U.S. stocks of crude oil have grown for the last six weeks.

But it's time to face some harsh facts:

• We're importing more oil due to a decline in U.S. oil production.

• U.S. crude oil inventories are over 21 million barrels less than a year ago.

• Oil Prices have consistently failed to fall below $90 a barrel recently.

I'll confess I may have been too quick to suggest that people are accepting $100 oil, but as a reader pointed out to me this week, "We have no choice."

And I don't see things improving.

Oil Prices Breaking $120 in 2008

Ever since the price for a barrel of oil pushed past the $100 benchmark, people have been asking me where it's going from here. I've read a wide range of predictions, all of them dodging the question in some way or another. Despite a few of them suggesting prices will "inevitably fall", most have estimated oil will average slightly higher than current prices.

Geopolitical and weather factors can exacerbate prices in a heartbeat, but the long term driver behind oil prices has always been supply and demand. Admittedly, focusing solely on supply and demand is only part of the picture, but one thing has become clear: oil markets are getting tighter.

For now, however, I won't even take geopolitical or weather related influences and assume we have another relatively calm hurricane season in 2008.

If oil prices remain above $90 a barrel over the next few months, then we may be seeing $120 for a barrel of oil during the summer. OPEC seems intent on defending $90 oil, especially if rumors of a production cut in their next meeting become a reality. We'll find out for sure next week.

Last year, oil prices briefly dipped to $50 a barrel before heading back up. Since then, they haven't looked back. During the peak of 2007's driving season, prices reached around $76 a barrel.

A similar increase in 2008 will mean $140 for a barrel of oil by July!

Even with lower demand estimates, I still don't see enough of a production boost from countries to make a dent in prices. After all, the only OPEC producer that are capable of increasing output over the next few years is Saudi Arabia, any growth beyond that is questionable. Production from newer fields will take years to come online.

One of the problems is that the world's oil production is too dependent on a small number of giant fields, most of which have been pumping oil for over four decades. It's not enough that production remains flat since producers are forced to make up for decline rates. Unconventional production from offshore drilling, heavy oil deposits or even oil shales will be able to help, but won't be enough in the long run.

Remember, it wasn't too long ago that $100 oil was unimaginable.

Let's hope our government will think of a better way to deal with soaring energy prices other than trying to sue OPEC.

Gasoline Hike in 2008

Look, you don't need me to tell you the kind of effect that $120 oil would have on pump prices. If you toss in all of those other factors that can swing oil prices, we're going to be in for another record year.

Now, you don't need me to tell you the kind of pain our wallets will have at the pump if oil hits $120 a barrel this summer. I expect EIA will be revising their price forecasts throughout the year as oil prices continues to rise.

When I'm paying between $4-5 per gallon this summer,perhaps next year we'll be remember fondly what it was like paying under $3 for a gallon of gas.

Until next time,

Keith Kohl

www.energyandcapital.com

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I offer a solution to the oil price problem. It will also solve a number of other problems. I say raise the gas tax by a lot. The first result will be reduced consumption. This drives prices down and reduces the cash flow to our adversaries in the middle east. An economic stimulus will result because people will spend money on using oil more efficiently. The tax money should be spent on improving public transit, which will also reduce oil use, and help us begin to prepare for the end of oil. The end of oil is certain, only the time is not. Only fools do not begin to plan for that time.
I look around me, at thousands of people driving alone in large passenger trucks, zooming powerfully, showing little heed for the price of gas. It needs to be higher to save ourselves.

My faith in the this country, it's legislators, and capitalism has hit an all time low. Any nation, any government that would allow seniors, and families with young children to go without being able to afford to heat their homes, or to live in abject poverty will not survive. I lived in Europe for a number of years, where this level of tyranny, this level of injustice would never be allowed. To allow the unregulated commodity market to push the prices of crude oil to a point that the nation rests on financial quicksand, to allow food price to outpace income of millions of hard working Americas, is despicable. Greed is as destructive as alcoholism. When is enough enough .... never for those who suffer from insane greed. An extremely wealthy man I knew, once said to me. "Relentless unconceivable greed will always end in milking the cow to death".

THINK ABOUT IT THE US DOLLAR IS SHIT DUE TO IT NOT BACKED BY NOTHING THAN THE FEDERAL RESERVE.THE FEDERAL RESERVE IS OWNED BY .........NOT THE US GOVERNMENT.........YOU GUY ARE IN TROUBLE ,EVAN A CANADIAN CAN FIGURE IT OUT.AT LEAST WE NEVER LOST A WAR AND ONLY BURT DOWN THE WHITE HOUSE ONCE.REVELATIONS SAY YOU GUYS ARE THE HARLOT! GET SOME EDUCATION.

what to do, what to do? Fine our oil companies! Destroy their incentive to look for and produce more oil. Yeah, that ought to fix it and show the voters that we are doing something about the crises at the same time.

Here in Canada our gas price is already close to $5.00 and our governments are adding taxes to it continually.

Call me paranoid but, am I the only person living who is a little uncomfortable with the fact that the energy source upon which civilization depends is almost entirely in private hands?

I wonder what planet you guys are living on! I keep reading how demand has not responded to the rising gas prices. Well, DUH, the mass of people who have jobs requiring a commute have little or no choice but to keep on buying gas for the vehicles they already had when this oil price escalation began. Yes carpooling can help but for many the need to have independent mobility trumps economy. Over some time(probably years) the vehicle mix will adjust to more efficient types & some will have to change jobs but it will be a slow process.
The "supply & demand" excuse for higher prices is a red herring as well-- what is at work is the ugly cousin -- "charge as much as the traffic will bear". When commentators keep saying look out $4 gas is coming or $200 oil this summer it just opens the door for those who will make it happen!
There is an almost no cost band-aid fix that would have an immediate effect-- revive the national speed limit on interstate highways-- I know-- the screams & hollers would be something else but we lived thru it before & could again. Make it 60 mph, which would be bearable, & then ENFORCE IT! I drive a 4 lane highway with a 70 mph speed limit & maintain that speed. The vast majority of traffic passes me @ a much higher speed & the mix is heavy with big SUVS getting maybe 14-15 mpg!
We are facing an inflation rate like we saw back in 79-81 & the results will be really ugly! Given the effect oil prices have on our whole economy, it is disgusting to read about the profits being made by investors in energy. All well & good to offset the higher price @ the pump with gains in the energy market for some, but Joe six-pack doesn't have that option. He is stretched to meet the mortgage, utility, & food bills!
I was very young during the last great depression but old enough to know it was no fun-- I very much fear we could see it happen again & it would not be pretty!
Hoping for the best--
RMC

The day has come for every other type of alternative fuel to help replace, or at least BEGIN to replace gasoline. $4.gal is here in San Francisco, what are you babbling about?

OPEC isn't a cartel t/b admired unless you're a thief, wake up!

$3 gas is kind of a shock, some say. Back in 1960, I packed Groceries at Kroger for 50 cents an hour. Gas for my 50 Ford normally cost 25 cents a gallon. Sometimes it went down to as little as 20 cents but more often it went up to as much as 30 cents.
Since I still have the same car, although it has been restored, I can guarrantee you that under a16 year old foot, it would not deliver 15 MPG, because it won't do it now. My son packed groceries at the exact same Kroger in 2002, making $8.75 an hour. His 94 Crown Victoria's digital dash said that over the car's 225,000 mile lift span, it averaged 23 MPG. His pay was 17.5 times mine in the exact same job in the exact same building. Using that comparison, my 20 cent gas would be $3.50 now. My 30 cent gas would be $5.25 a gallon.