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Blog : Up, Up and…
by John Whitefoot on May 11th, 2007
Memorial Day and the start of the summer driving season may be just around the corner, but gas prices are already getting warmed up. Gas prices are approaching record highs, and experts say $4-a-gallon gas is on the horizon.
“I think it’s going to happen,” said one market analyst. “Unless things change dramatically, I think we’re going to see $4 a gallon.”
Already, prices in California average $3.48 a gallon. And one service station in San Francisco was recently charging $3.95 a gallon.
While geopolitical tensions have driven up the cost of crude oil, which accounts for about half the cost of a gallon of gas, refinery problems in the United States are largely to blame for the price jump.
Refinery output in the U.S. has been below normal for several months now, after fires and other accidents combined with longer than normal maintenance shutdowns, hurting production. Refiners have not operated above 95% capacity since Hurricanes Rita and Katrina in 2005.
As a result, gas supplies have fallen for the past twelve weeks straight and are now at their lowest level for this time of year since 1956 – around the same time Richie Cunningham and the Fonz were cruising around Milwaukee.
This all comes just as the nation gears up for the summer driving season, spurred by vacationing families and students out of school.
Despite inventory fears, some think that the rising prices at the pump may be peaking. Some think it may even tick lower.
If you put your faith in statistics, it doesn’t really matter all that much. In 1980, the average American had to work 105 minutes to pay enough gas to drive 100 miles. By 2006, the average American needed to work only 52 minutes, thanks in part to better fuel efficiency and higher wages.
That’s an interesting factoid for number crunchers and Jeopardy junkies, but small consolation to drivers.
Whether its bad weather, usurious rig rates, or diminished capacity…producers are going to have to punch more and more holes in the ground just to keep production steady. If they don’t, they know that penny stock investors have a simple equation: falling production equals falling share price.
No matter how much it may impact their profit margins, the big, and small oil companies are going to have to pay up to drill.
Who are the big winners going to be? Penny stock investors might be looking at oil and gas to make some money in 2007, but a big beneficiary could be the rig operators. Other segments that should do well are those publicly traded companies that supply and service rig operators and the oil and gas industry as a whole.
When push comes to shove, it’s futile to fight gas prices. Even if you do, chances are you’ll be rewarded with higher prices. As a penny stock investor, it’s better to join them.