Four Forces that Could Send Gas Higher



Sean Brodrick discusses why he believes that gas prices are going to rise even higher during the summer months of 2008. Mr. Brodrick takes a closer look at the four major forces that are sending gas prices soaring.

Brodrick believes that gas prices are going to rise higher and that there are four of the major forces that could send gasoline prices soaring.

Since summer of 2007, gasoline prices have soared about 31%. However, oil prices have nearly doubled at the same time. According to the U.S. Energy Department, the cost of crude accounts for 73% of the price of gasoline. So, gasoline should have gone up more. As consumers were shocked by the prices, refiners hesitated to pass along price hikes and the crack spread between crude and gasoline got smaller. The crack spread is the difference between the price of crude oil and the value of the petroleum products that refiners can make from it. The crack spread can widen or narrow over time, depending on supply and demand. In March 2008, the crack spread narrowed severely. But it's been rebounding since then.

Saudi Arabia recently agreed to pump more oil. In a meeting with U.N. chief Ban Ki-moon, the Saudis agreed to boost their oil output from June to July by 200,000 barrels per day (bpd). And that comes on top of the 300,000 bpd they reportedly added in May. The problem is that it's too little too late. Saudi Arabia, United Arab Emirates, Iran, Kuwait, Iraq and Qatar saw their production drop by 544,000 barrels a day in 2007. At the same time, their domestic demand increased by 318,000 barrels a day. So, their net exports dropped by 862,000 barrels. Saudi Arabia would have to increase production by a million barrels a day to make up for the difference in net OPEC exports over the last couple years. And that's production that Saudi Arabia probably doesn't have. Net exports aren't just an OPEC problem. Thanks to rising domestic demand, the net oil exports of the world's top 20 exporters peaked in 2005.

Demand is surging around the world. The incremental drops in oil and gas demand being seen in developed countries like Germany, Japan, the U.S. and Britain just aren't enough to make a difference as demand surges in countries like India, China, Brazil and Russia. In 2008, emerging markets combined will pass the U.S. in oil use. And their gasoline use is rising, too. China just became a net importer of gasoline for the first time. China's high gas demand is being fueled by its preparations for hosting the summer Olympics in August and the fact that Chinese car sales could climb to 10 million throughout the remainder of 2008.

The Gulf of Mexico is home to 40% of America's refining capacity, along with 20% of the natural gas and 30% of the oil produced in the U.S. The National Oceanic and Atmospheric Administration (NOAA) predicted above-normal hurricane activity in its Atlantic Hurricane Season Outlook. NOAA projects 12 to 16 named storms will form within the Atlantic Basin, including 6 to 9 hurricanes, of which 2 to 5 will be intense during the 2008 hurricane season. And while offshore platforms have been reinforced since hurricanes wreaked havoc in the Gulf of Mexico's "Energy Alley," all it would take is one bad storm in the wrong place to swamp refineries or even knock out the Louisiana Offshore Oil Port (LOOP), which is connected to 50% of U.S. refinery capacity.

"If a hurricane hits in the wrong place, forget $4 a gallon gasoline, $5 a gallon gasoline, heck, we might be looking at $6 a gallon gasoline or higher. That would be a sharp price spike, not the kind that sticks. But the higher we go, and the longer we stay higher, the more 'normal' otherwise outrageous gasoline prices become," Brodrick states.

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http://www.moneyandmarkets.com/Issues.aspxGet-Rich-as-Gas-Goes-Supersonic-1895

About Sean Brodrick & Money and Markets:

Sean Brodrick joined Weiss Research in 2000 as an analyst, bringing more than 25 years experience as a journalist and financial analyst to the position. He is Weiss Research's small-caps specialist, especially in natural resources, and is the editor of the company's Red-Hot Canadian Small-Caps, as well as a regular contributor to its daily e-letter, Money and Markets.

Previously, Mr. Brodrick was the investment director of The Sovereign Society, the world's leading publisher of offshore asset protection strategies and global investment opportunities.

Recognized for his expertise on Canadian and Australian investment opportunities, Mr. Brodrick has been featured on many financial talk shows, including CNBC Squawk Box and Bloomberg Market Line. He is a weekly guest on Market Matters Radio, a contributing columnist to MarketWatch.com and a frequent commentator on one of Canada's premiere financial websites, HoweStreet.com. His report, "70 Days to Empty," has garnered acclaim for its analysis of the forces pushing America toward its next oil crisis and was described by

The Daily Reckoning as "the most important report you're likely to read this year," while his knowledge of uranium has helped investors earn solid gains on the commodity.

Mr. Brodrick holds a B.A. degree from the University of Maine.

Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.





Four Forces that Could Send Gas Higher