This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Sweet Spot in a Gas Market That Wants High Prices

NEW YORK ( TheStreet) -- Shortly after Hurricane Katrina, I had to drive up to North Carolina on business.

The hurricane had knocked out Louisiana refining capacity, dramatically cutting supplies. Thus traffic was very light. I gassed up before leaving and took a picture of the sign outside the station, because I was shocked at the prices -- $3.15/gallon for regular!

Today we'd call that a bargain.

Americans have become inured to gas prices we previously found unacceptable, and the industry has taken note. They have learned that the supply chain of this global market can be manipulated at many different points to maintain that price, and it is.

In some ways, these high prices are good news. They encourage efficiency and efficiency pays. Buy a higher-mileage car and you make up most of that cost in energy savings -- you get a sweeter ride, too. The same holds for appliances, for heaters and air conditioners and for industrial boilers. Efficiency is the cheapest form of renewable energy and a source of economic growth.

But with U.S. oil now supplying 83% of domestic needs according to , and oil trading in a narrow range at a $20/barrel discount to European supplies, as ArmoTrader Jerry Hachoyan writes , producers have had to find a new choke point in order to maintain pricing.

The choke point is refining.

Domestic refining capacity hasn't increased in over a decade, according to the Department of Energy and very little capacity is idle. Thus, by rescheduling the move from "winter" to "summer" fuels and by suddenly scheduling maintenance, refiners have turned oil abundance into a gas shortage, despite the fact that stocks of gas are near their yearly high, as BusinessInsider writes.

The winners, for now, are those who hold stocks in refiners, like Valero (VLO - Get Report), Tesoro (TSO - Get Report) and HollyFrontier (HFC - Get Report), which are on fire, writes Inthemoneystocks. But earnings multiples are still cheap, according to Chris Damas at Seeking Alpha. You can still get in.

So far there has been little screaming about this from Washington or Houston, because high gas prices are in the interests of everyone. They spur both efficiency and production and they assure profits both upstream and downstream from the refiners.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
HFC $34.41 -3.00%
KMP $102.03 1.98%
TSO $78.64 -2.90%
VLO $57.64 -3.60%
AAPL $95.18 1.60%


Chart of I:DJI
DOW 17,750.91 -140.25 -0.78%
S&P 500 2,063.37 -18.06 -0.87%
NASDAQ 4,763.2240 -54.37 -1.13%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs