Making Sense of Rising US Gas Prices

In 2008, the national average price of gasoline topped $3.50 a gallon for the first time… on April 21.

Last year, it happened for a second time… on March 6.

This year, it has happened already.

“There’s a chance that the U.S. average tops $4 a gallon by June,” says Brian Milne of the commodity research firm Telvent DTN, “with some parts of the country approaching $5 a gallon.”

After the latest Iran-Israel drama we noted yesterday, oil is up to $101.58 this morning… the highest in a month.

And there’s a new wild card this morning. Few are talking about it… but it could easily drive oil much higher, and gasoline to $7 or even $8 a gallon.

Here’s where you might think we’re crazy. But it’s a real possibility. What would your life be like with $8 per gallon gas??

“This is another one of those possible flash points in the region,” says Georgetown political scientist Paul Sullivan, “that could become a much bigger fire if it is not contained early on.”

Sullivan is referring to an internal rebellion in Saudi Arabia.

According to Bloomberg, fighting is getting worse in the east of the country, with police and armed Shia protesters. The protesters killed 11 police in October. Since then, police have killed seven Shia, according to human rights observers.

Here’s what makes the situation so volatile: The east is where the Saudi oil is. It also has a majority population of Shia Muslims — in a nation ruled by Sunni Muslims for the last 80 years. We have been talking about it a lot, but the fact is you don’t need an Israeli or US attack on Iran to drive gas prices up dramatically.

The conflict in the Saudi oil patch sets up an alternative scenario.

Addison Wiggin
for The Daily Reckoning