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April 15, 2011

$5 gallon gasoline next?

We're already at $4 in selected U.S. spots. And, Peak Oil, not just the unrest in Libya, is a cause, it seems.

"Peak Oil" only comes strongly into play if demand is pushing upward fairly rapidly.

And it is.

China has already passed the U.S. in coal use. By 2020, it may pass us in oil consumption.

Since we may well have hit "Peak Oil" three years ago, if China doubles its oil use in a decade or less, that will inevitably put upward pressure on oil, and thus gasoline, prices.

In Canada, where gas prices are fairly similar to those in the U.S., gas is at $5 a gallon in liter equivalents already. That's leading to talk of gas at $2 a liter, or about $7.50 a gallon, being just a year or so away.

In case you think any of that is due to cheap Canadian money, the loonie is trading with the U.S. dollar at rough parity.

So, we could see gas at $5 a gallon in the U.S. heartland a year or so from now, and $6 a gallon in places like New York City and San Francisco.

Now, the one silver lining? Per Rubin's column from Canada, this could mean, if not the end, at least a partial reversal of globalization. He touches on that more in a book, Why Your World Is About to Get a Whole Lot Smaller: Oil and the End of Globalization. And, he's not alone. Walmart, when oil prices hit $147 in 2008, was already talking about how some of its supply chain might have to move back from overseas.

That said, U.S. workers wouldn't benefit, in many cases. Mexican maquiladoras would see new spurts ... if U.S. companies could stomach the overhead of armed guards against drug lords.

That then said, such actions could spur Mexico into further disintegration, with major manufacturers extending their security forces outside their factories and creating de facto statelets.

At the same time, don't forget that hear in the U.S. President Obama refused to tackle the need for more regulation of commodities derivatives as part of financial regulation reform. If Peak Oil is here, Enron of a decade ago will seem like nothing.

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