By Jeff Cox, CNBC.com Staff Writer
NEW YORK ( CNBC) -- A dollar plumbing three-year lows is hitting Americans squarely in the gas tank, and one economist thinks it could drive prices as high as $6 a gallon or more by summertime under the right conditions. With the greenback coming under increased pressure from Federal Reserve policies and investor appetite for more risk, there seems little direction but up for commodity prices, in particular energy and metals. Weakness in the U.S. currency feeds upward pressure on commodities, which are priced in dollars and thus come at a discount on the foreign markets. One result has been a surge higher in gasoline prices to nearly $4 a gallon before the summer driving season even starts, a trend that economists say will be aggravated as demand increases and the summer storm season threatens to disrupt oil supplies.
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Hastings sees gasoline having "no problem" getting to $6.50 a gallon over the summer after increased demand and storm disruptions come into play. Others, though, say gasoline prices haven't needed any help so far from other events -- the moves by the Fed to keep interest rates in negative real terms are enough to boost energy by themselves. Michael Pento, senior economist at Euro Pacific Capital in New York, says there is an almost perfect negative correlation between the falling dollar and oil prices -- minus-0.9 to be exact. "When you have negative correlations that strong, it's not hard to understand that the reason why we're having this price spike in commodities is primarily because of the weaker currency and not because of shortages of oil or international tensions or global growth," Pento says. The assertion from Hastings that the weak dollar is responsible for one-third of the total cost for a gallon of gas "sounds very low," Pento says, adding that a barrel of oil should be closer to the $65 to $70 range if priced properly. "That's exactly where it would be if we weren't crumbling our currency," he says. Should events follow their current course, sharply higher gas prices will burden consumers further as they also cope with the rise in food costs this year. Hastings projects the dollar index to test 72 at some point -- another 3 percent drop -- while Peter Cardillo, chief economist at Avalon Partners in New York, sees the dollar dropping to the 73.50 level. "The global economy is quite strong, and the weak dollar is basically fueling even higher energy prices. That's not transitory," Cardillo says. "Gas prices in the Northeast are over $4 a gallon. How could anyone say that's not a burden?"