Remembering the good ol' days of regular gasoline being 49 cents is becoming more and more like a very distant memory. Currently prices are hovering around $1.20 or more in many parts of Canada; however, it seems the ceiling is unlimited.

Image having to pay over $2.25 a little for gasoline or even more if you use the higher grade fuel. This could become reality within the next four years according to a report from CIBC World Markets.

As with many products, cost is determined by supply versus demand and that supply is becoming more and more tight. With the price of crude rising everyday gasoline is expected to top $1.40 this comer, $1.80 within two years and over $2 soon thereafter.

One problem as observed by the report could be the increase use of natural gas.

"While natural gas liquids only account for 10 per cent of total supply, they account for virtually all of the increase in petroleum liquids production since 2005," says Jeff Rubin, Chief Strategist and Chief Economist at CIBC World Markets. "Stripping out natural gas liquids, oil production has not grown for over two years, which certainly goes a long way to explaining why oil prices have doubled over that period."

Speaking of natural gas, in the 1970s it accounted for four per cent of oil production; however, by 2012 it is estimated to account for over 10 per cent. This trend will not allow for production of oil to increase much in the foreseeable future.

"Whether we have already seen the peak in world oil production remains to be seen, but it is increasingly clear that the outlook for oil supply signals a period of unprecedented scarcity," adds Mr. Rubin. "Despite the recent record jump in oil prices, oil prices will continue to rise steadily over the next five years, almost doubling from current levels."

Increases in automobile use in countries such as Russia, India, and China have contributed to the crunch in oil supply. TATA motors who recently bought Jaguar and Land Rover from the Ford Motor Company introduced a car costing below $3,000 US. This introduces the concept of the automobile to many people in developing nations and in turn, the concept of using gasoline.

To put things into perspective, while car sale in North America and most of Europe have been stagnate, sales in 2007 in Russia increased 60 per cent; 30 per cent in Brazil and 20 per cent in China.

It is predicted that while consumption in the developing world continue to increase, countries such as Canada and the United States will see a decrease.

"In order to accommodate more drivers on the road in Russia, China and India, there must be fewer drivers in the U.S. and the rest of the OECD. U.S. oil consumption is likely to fall by over two million barrels a day over the next five years as retail gasoline prices raise from their current $1.20 a litre mark to $2.25 a litre."

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