Tuesday, June 2, 2009

U.S. Dollar Lower = Higher Gas Prices

Now that the U.S. Government owns 60% of GM and making decisions for the company expect higher gas prices and a weak U.S. dollar.

The Obama administration and its environmental ilk want drivers to burn less gas because they believe it causes global warming. To burn less gas Obama will have GM build small, less safe but more fuel efficient cars. The only problem is people do not want to buy those types of cars.

The only way the purchase of GM by the government can be successful is if the small cars they produce sell. And, as we know from high gas prices last year, people only buy small cars when gas prices are above $3 a gallon. So, how does the Obama administration raise gas prices without raising fuel taxes or putting price controls on oil? Weaken the value of the U.S. dollar.

The price of oil is denominated in dollar terms so the price is not only affected by the supply and demand of oil but also the value of the U.S. dollar. When the dollar loses value it takes more dollars to purchase the same amount of oil and, as you know, when the price of oil goes up the price of gas goes up.

Expect high gas prices and a weak U.S. dollar for the foreseeable future.