Oil Closes at Two-and-a-Half Year High

While there are some indications inflation could become a problem in the United States as well, there has been no signal from the Federal Reserve that interest rate hikes are in the plans any time soon.

If interest rates do rise in Europe, but not in America, we could then see the dollar steadily decline in value -- as traders look to take advantage of the carry trade, That's when investors use funds from a country with low interest rates to fund investments in countries with higher interest rates. The carry trade typically leads to a decline in the currency with the lower interest rate; in this case the dollar.

Since oil and the dollar typically trade inversely proportionate to each other, a falling dollar pushes oil prices higher -- which is exactly what we saw in today's market action.

Libya Crisis Impacting OPEC

Of course, the main thing on most oil traders' minds right now is Libya. They're watching to see what effect the Libyan uprising will have on both that country's own oil production and the ripple effect it will have on other oil-producing countries. Revolutions are contagious, and depending on how the Libyan situation plays itself out there is a good possibility another oil producer will be next in line -- to go through a revolution similar to what we are currently witnessing in Libya.

The Libyan crisis has already impacted oil supply. OPEC countries report oil production in March dropped 363,000 barrels a day, to the lowest level since September. Saudi Arabia has upped their output, to help counterbalance Libya's lower production, but it has not been able to output enough to keep overall production down.

According to a Bloomberg survey, Libyan oil production fell by 995,000 barrels a day during March, which is a sizable amount -- considering that in January it was producing 1.59 million barrels.

Libya's oil production during March represented the lowest output the country has had in the past 49 years.

Oil closed today's session up 2.4% to $106.72, up $2.45 a barrel.

Pain at the Local Gas Pump

The impact most of us feel from sharply rising oil prices is the price we pay at the pump, to fill up our gas tanks. Gasoline prices have been soaring, with the national average for a gallon of gasoline currently sitting at $3.606. Over the course of the first quarter, gasoline prices rose $0.54 a gallon.

In many places around the nation people are already paying $4 a gallon for the gas. There is ever-increasing fear, meanwhile, of just how high gasoline prices will go by the time we enter into the high-demand summer driving months.

What prices are you seeing in your area? Please share with us where you live -- and how much you are currently paying for a gallon on gas.