Monday, May 21, 2007

High Gas Prices: Blame The Person In The Mirror

Everyday gas prices hit a new high record level the folks people love to blame are the oil companies (Exxon (XOM) is the main whipping boy), the Iraq war, a Bush / Cheney conspiracy or the local gas station. As a matter of fact they blame everyone except the real culprit, themselves. Year to date gasoline demand is at a record 9.2 million barrels a day. Much had been said in the news about refinery outages and there have been a few but they have been able to keep up increasing production 3.1% which is ahead of the 2% increased in demand. Note that it is ahead of the increase in demand, not usage. In fact, refiners have been able to meet 96% of our highest even demand. This compares to 93% of demand last year and is above the 5 year average of 95%.

This means that despite you and I demanding more gasoline than ever, refiners are doing their part keeping up production. This demand and inventory depletion has lead to prices at the pump surging 43% this year past post Katrina levels to $3.13 a gallon nationally on Friday and seem to be heading past the inflation adjusted all time high of $3.22 set in March of 1981. For me, I cannot get too worked up about gas when I pay $3.40 a gallon for milk, $7 a gallon for coffee at Dunkin Donuts, almost 6 times that at Starbucks (SBUX) and $6 a gallon for water at a ball game.

Savvy investor will be buying refiner stocks like Chevron (CVX), Exxon, BP (BP) and Valero (VLO)as prices and demand will not slow for at least the next 4 months, leading to plenty of profits.

So if refiners are doing their part, why have gasoline inventories dropped 15% between February and April to the lowest levels since 1956? The main culprit? A strike at a French port that has decreased gas exports to the US 9.6% or 109,000 barrels a day and is responsible for almost the entire shortfall.

This works out fine, it is much more fun to blame the French that ourselves anyway.

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