This chart fascinates me.  Between 1987 and 2005, The demand of Oil in the U.S., Western Europe and Japan was on an upward slope.  In the last few years the demand for oil has been declining.  In fact, the demand for oil in these three countries has declined so much in the last few years, that it is lower than it was in 1996.

The demand in the rest of the world has skyrocketed.  If you want to read the story that Ed Yardeni did regarding this chart, click here.    Next I will show you a chart of the price of gasoline since 1990.

This data comes directly from The U.S. Energy Information Administration.  From 1990 to 1999 our gas price stayed in a range of roughly $1.00 to $1.50.  On a side note, remember when gas was below $1?  It was actually below 90 cents per gallon on average in February of 1999.  So what caused this rise in the price of gasoline?  One reason is the falling dollar.   Remember, oil is only traded in dollars.  Iran is trying to trade oil in something other than dollars because of the sanctions, but we shall see how far they get.  Here is a chart of the dollar.

If you put the huge increasing in demand together with the falling dollar, it makes sense why the price of gasoline has skyrocketed.  So the answer is simple, right?  Increase the value of the dollar and the price of gasoline will come down.  On the face of it, that is the easiest way to do it.  The problem is, the only way to get the value of the dollar to rise is by raising interest rates.  We all know Bernanke can’t do this because we will fall back into the Great Recession.  The economy has stabilized, but in no way can it grow on its own without the massive amount of stimulus being provided by the Fed.  The reality of it is we simply have to get used to gas prices peaking out around $4 and dropping back down towards $3.25.  That is the new normal.  Fortunately, gas prices tend to peak in May and slide for a few months as shown in the chart below, so our pain at the pump is going to be at a maximum very shortly.

What are your thoughts? Is the government responsible for bringing gas prices down?