Has anyone else been waiting for the other shoe to drop?

Ever since oil prices surged past $90 a barrel, I've been waiting for the day when pump prices followed suit.

But despite oil trading well over $80 a barrel, people didn't seem to mind. After all, pump prices have remained flat for the last few months, even if they are about 40% higher last year. What was there to fear? The peak driving season is over, so it's smooth sailing from now on, right?

Unfortunately, that's not the case.

According to the Energy Information Administration's (EIA) petroleum report this week, gasoline prices took off, rising to an average of $3.11 per gallon. And as if that weren't enough, the head of the EIA, Guy Caruso, announced that prices could rise more than twenty cents over the month.

Let me ask you, "When was the last time you paid $60 to fill up your tank in December?"

But before you start pointing the blame at drivers, remember this...

Gasoline demand actually dropped this week. According to the EIA, demand fell by 180,000 barrels per day. In fact, our gasoline demand over the past few weeks is only slightly higher than last year:

EIA U.S. Gasoline Demand

So if it's not some glut in demand, could the record oil prices finally be affecting prices at the pump?

Although we already knew these record oil prices would eventually affect our weekly gas fill-ups, don't expect relief to come anytime soon. There's a bigger problem you should be worried about: Oil markets are getting much tighter.

Testing Peak Oil in 2008

Buried in the Caruso's pump prediction was a bigger problem: Oil markets are getting much tighter.

I can hear OPEC still crying, "Don't blame us, it's the speculators!"

According to Caruso, that might not be entirely true, pointing to a problem in fundamentals. In other words, the problem is that our oil consumption is getting out of hand. I can't help but wonder what people will say if oil if over $90 in January? By then, we could be seeing pump prices hitting up to $5 this winter.

Assuming OPEC is "comfortable" with oil at $90 a barrel, another output increase is highly unlikely when the organization has its formal meeting in December. Perhaps November's 500,000 barrel production increase was too much. We won't know for a few months if the November increase can help ease crude prices.

I've been saying this for a while now: The peak oil theory is going to be put to the test in 2008. Since global oil production has remained flat for the last few years, oil prices could really get out of hand next year as demand continues to rise.

In 2008, we're going to find out which OPEC countries telling the truth about production capacities. I've got a feeling that Saudi Arabia may be the only one to increase production.

The Price Trigger

Now that we know more pain at the pumps is on the way, I've always been curious about what a person's price trigger is. In other words, what is the price when you go to yourself, "Maybe I better work from home today, or perhaps I should walk to work?"

Admittedly, it'll be different for everyone, but I think my trigger is around $7 or maybe $8 per gallon.

I guess only time will tell.

Until next time,

Keith Kohl

p.s. I know a lot of my readers have been asking me about new places they can look to invest their money. A new financial service called, "SC Trading Pit", will be "unveiled" to Energy and Capital readers next week, so stay tuned. SC Trading Pit was developed to help you find the "small cap" companies with the potential to increase hundreds, if not thousands of percentage points.

"Energy stocks... The only way a human is going to make any money."

-- Matt Simmons, Peak Oil's first and most vocal proponent,
and founder of the country's last pure play energy investment banking firm.

Follow the money trail. Sign up for Energy and Capital now.

Enter Your E-mail Address Below:

By signing up, you'll also get our latest report, The Truth About Oil.

The article was ok but you need more information about gas prices and not so much on how the oil prices affect us.

Silly man. You should be forecasting $7-$8 per cup of gasoline next winter. That's about your line of forecasting, but I might be a bit modest there as well.

I must agree with Doug it is all down to GREED,esp here in the UK where the taxes are just plain crazy.It does not seem that long ago when diesel was half the price of petrol and now it has overtaken it as it became more popular,as will all the green alternatives as they become more popular they will just keep raising taxes on it being eviromentaly friendly will not make any difference at all

Has anyone heard of the new oil fields coming on line in the South China Sea, 300 billon barrels..... the fields off the Brazilian coast another 90 billion, the fields in Africa another 70 billon, Russia and upper middle eastern countries another 280 billion, the tar-sands in central Canada, Montana & Colorado ..... off the east and west coasts of the US. and the list is growing every week .... The Gulf is just now half open to drilling. Their finding oil 10,000 feet below the waters of the Atlantic at 30,000 feet that will make OPEC look like a piker. In am interview with Carl Rose it was Lee Raymond, former CEO of Exxon who said just before his retirement "With the new technologies coming on line we have enough crude in the ground for the next 250 year if we start developing alterative fuels in the next ten years". He was referring primarily to fuels like hydrogen ..... The concept of Ethanol as an alterative is a fraud. To fill this nation needs for Ethanol we would have to plant every square foot of fertile land in the US with corn. What good does it do for inflation when the cost of other croups go up as more and more farmer turn to corn as a croup of choice. I've been researching the oil and gasoline debacle every day for the last seven years, and I have to say "you ain't seen nuttin yet!" The oil rush is on. And just like the subprime debacle the oil new suppliers coming on line is going to crash the market. This is something that can't be kept under raps for much longer.

Also the cost of petrol in Europe carries a 75 to 80% tax, meaning that if you remove the tax the cost of petrol drops to $1.97 a US gallon, and in the rest of Europe the story is about the same. What to they get for that tax of 80%, they get nearly free health care, free higher education for those students who carry good grade through the lower grades.... they get better highway and bridges, good transit systems that can carry you all over western Europe. So when you hear someone talking about the cost of petrol in Europe, don't forget to point out to them the details of that misleading statement.

We were being set up in 1983 when the fed under Regan deregulated the commodities markets. and even before that when Nixon took us off the gold standard. Now even OPEC is saying we are being taken to the clearers by the crude oil speculators, as well as a host of other deceptions now being played out in the US markets. I just dump my gold holdings last week after 12 years of playing that game ... as well as my green stocks. I'm playing the hydrogen production and fuel-cell industry in Norway and Canada now.

Has anyone seen Senator Peter DeFazio's Bill H.B. 1500? If your interested in his approch to a fix in the oil industry google H.B. 1500.

It's stuck in Committee now and you can bit it will stay there if the oil slicks have their way.

Keith
Don't forget that on this side of the 'pond' in UK retail prices are now well over £1 sterling per litre after a recent surge - I guess thats around USD10 per gallon. Rather than the price I think its the speed of increase which unnerves everyone. I have paid over £60 sterling (? USD120 ?) to fill my very average family car for several months now.
I agree that its not going to get any cheaper. We don't have much sympathy for your $3.11 gallon, but as I've said, its the speed of the increase that worries everyone.
France is about 25% cheaper than UK but prices are rising.
Consumption rates for vehicles are becoming increasingly important here as I am sure they will be worldwide from now on.
I enjoy your regular commentary, keep it up - many thanks
Andy Barnes

Here on Vancouver Island, near Victoria, BC, there is NO competition at all. You only choose which station/brand you wish to pay for, C$ 1.059 per litre, at present. Mutiply by 3.87 to get one US gallon, and bingo! $4.098 Canuck bucks a US gal. Diesel should cost less, but when I fill my 100 l tank on my 1995 GMC 2500 p/u, it sets me back C$ 110.90, as diesel is now C$ 1.109 a litre!

Hello. Really enjoy thease articles
which 100 percent of the time hit the nail on the head, so to speak.
I all reality, I guess you have, as I have concluded that the oil cartels are in bed with the governments here in North America.
In Canada we are being taxed to death on our fuels. Basically 30 percent plus is federal, and provincial tax. Our government takes in so much cash, they do not know what to do with it. All this does is boost the cost of goods & services here and States side. I do believe there will be an accounting eventually and the practice will come back and bite them on the backside. Best regards,
enjoy your articles. Don Herd

well we are up to nearly $2 per litre here and there are 3.8 litres per gallon..so that works out at $7...nz I guess and also our dollar is only worth what?? 74cents american...What you dont realise in America is that even at the now prices your petrol is still cheaper than what we could even dream of paying.

Keith, Good article. For us living in the UK, the price is about $7.50 per US gallon and taxes are over 70% of that. But, people seem to be 'used to it' and the roads are busy. France is a little cheaper (not 25%) and Spain cheaper still, but not by much. Prices are all posted on the web. I drive a Smart Car (soon to be introduced in the US) and I get 42-44 mpg (US) local driving. We'll be seeing more small cars in the future. I fill my tank for about $25.

all i have to say is that there is alot of people that have made those choices. I know people who walk to work for minimum wage. I know people who are riding mopeds all winter. I know people who live in houses with rooms closed off, and the heat turned down in the rooms they stay in, all because of what? Peak oil? NO! One simple thing, That is GREED, We will see how bad things are going to be when people cant get to work, pay there heat bills. What will this do to our economy? Will all the greedy people be happy? We will see! Oil Companys have made enough profits that they can afford the "extra" cost of drilling deeper! The Question is can they afford a broken economy?

For me, doesn't matter if gas hits $10/gal -- I'll still have to drive to work everyday. But, at $5, I'll probably curtail my other driving a bit.

we in the uk are paying approx 9 dollars a gallon,and its due to rise aging soon, americans, like us Brits will pay what we can afford and carry on paying, so long as we have access to gas.we will do nothing about it, as long as the individual has gas for his car.its not the price that will stop us buying gas its if there is any at the pumps.

Wow!!!! I think you are the first person in the history of the universe to use the words "telling the truth" and words like "Arab Countries" in the same sentence! I also believe 2008 is an important year. Will we see it in gasoline prices? I don't know. But I do know that 2008 is the start of on mass retirement of the boomers. It's the start of a 20 year period in which 78 million boomers will start retiring. The question is will they sit at home and watch TV or will they travel via cars and planes? I don't think they will stay at home. The other question is who will replace them in the work force? There is not enough echo-boomers to do that. The global oil industry shed about 60,000 workers in the 1990's. Over the next 10 years America's utility industry could face a 60,000 worker shortfall. Who will replace all of the workers leaving NASA? The FAA? What's the average age of an American Refinery worker? Most Americans don't know that today it's not only oil that we import, we also import 1.2 million gallons of finished product per day. On top of all of this, we assume (without knowing), that we will have all of the labor to replace the boomers in the workforce plus have all of the workers (with technical skills) that are going to build our future alternative energy infrastructure. Money is just a claim on someone else's labor. I don't know how much the price of gas has to go up before people start cutting back, but I think it's more about time. If it's a slow process drip, drip, drip then people will adjust but if the price of gas goes up faster than a squirrel up a telephone pole, we are in trouble. Regards, Aramco Renick

How much substance do you give to the various reports that the Ghawar Field is already pumpin' sand? For sure, the Saudis will never admit it!!

In addition to the higher price of oil getting to the 'world of hurt point', the 'surprise' reduction in oil consumption is no surprise as the law of supply and demand is kicking in.

The use of alternatives is increasing. Once the Americans get the message that it is their patriotic duty to their families and their nation to get out of oil watch out.

Here in NZ I have just been to the Christchurch Show and there were so many solar pumps, heaters and panels for the home. Ground heat extraction devices, wind turbines, biodiesel. Energy crop production intiatives from government for farmers or just land owners who are willing to crop rape seed. Coherant cost effictive household and farm energy plans. Farm power stations for irrigation and power consumption AND generation back into the grid!

T think good old supply and demand will adjust the oil imbalance in due course. Mind you the 'Scare and pain' factor does help to get people motivated 'creative stress caused by a diminishing bank balance' does help to change minds.