Gas Prices
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These Gas Tax Hikes Will Make Driving A Lot More Expensive
Americans worried about how rising oil prices might affect prices at the pump are about to get blindsided by looming gas tax hikes that almost guarantee higher gasoline prices.
And it's not just state governments looking to shake down American motorists.
Alarmingly, the International Monetary Fund (IMF) has called for the U.S. government to increase the current federal gasoline tax of $0.184 per gallon by a whopping $1.40.
In a March 26 speech, IMF Deputy Director David Lipton said the gas tax hike would pay for social programs around the world as well as to save the environment.
"The time has come for subsidy reform and carbon taxation," Lipton said.
This federal gas tax hike, if imposed, would add $14 to a typical 10-gallon fill-up and hundreds of dollars to the annual cost of driving.
Fortunately for U.S. drivers, few in Washington support the IMF proposal.
"Higher gas prices hit those who can least afford it the most as American families are forced to pay a larger percentage of their income on higher energy prices," Rep. Fred Upton, R-MI, chairman of the House Energy and Commerce Committee, told Fox Business. "Drivers across the country are already struggling to pay up to $4.00 a gallon for gas, and further price increases at the pump could be devastating to low- and middle-class families and disastrous to our economic recovery."
Now if only state legislatures felt the same way...
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Why Oil Prices Aren't Coming Down Despite Big U.S. Oil Boom
The dual promise of the U.S. shale oil boom was that it would reduce our dependence on foreign oil and lower oil prices that would benefit U.S. consumers via cheaper gasoline.
But while U.S. oil production continues to rise, and gasoline consumption continues to fall, gas prices have remained stubbornly high: The national average was about $3.65 last week.
And that trend is expected to continue, with the United States surging past Saudi Arabia as the world's largest producer of crude oil as soon as 2020. Meanwhile, U.S. gasoline demand is at its lowest in more than a decade - down to 8.7 million barrels a day.
Facts like that have led some pundits to predict falling oil prices. Last year, some politicians were promising that stepped-up U.S. oil production could lower gasoline prices to $2.50 a gallon.
Frustrated U.S. drivers struggling to cope with high gas prices were eager to believe such promises, no matter how unlikely.
Unfortunately, all that new U.S. oil, while helpful in some ways, will not have much effect on gas prices - either now or in the foreseeable future.
"The problem is that prices are not just reflective of new supplies, either too much or too little," explained Money Morning Global Energy Strategist Dr. Kent Moors. "By focusing only on how much is there, these analysts provide a fundamentally distorted view of the oil market."
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Why Gas Prices Will Continue to Climb
The average price of gas in the United States is still below the 2012 average of $3.63 for a gallon of regular, but that won't be true for long.
Gas prices have risen every day for three weeks, and motorists are starting to wonder when the surge will end.
Nationwide, the average price for a gallon of regular gas is up 26.3 cents, or about 8%, this year to $3.55, the highest level since the end of October.
And the 17.4-cent spike in the average price of gas between Jan. 28 and Feb. 4 was the largest weekly increase in almost two years.
Unfortunately, it's unlikely gas prices will drop anytime soon.
Here's why.
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Higher Gas Prices a Sure Bet Due to Hurricane Isaac, Fire
Production halts due to Hurricane Isaac and a deadly explosion at a Venezuelan refinery have pushed U.S. gas prices to a near four-month high.
As the hurricane hit land yesterday (Tuesday), oil and gas production in the Gulf of Mexico had virtually shut down. Oil companies now must wait out the storm before they can assess any damages.
Energy firms in the region have suspended 93% of the typical U.S. oil production and 67% of natural gas in the gulf, according to a report released Tuesday by the Bureau of Safety and Environmental Enforcement. Companies have evacuated 503 platforms and 49 rigs in the region.
In addition, gasoline refiners have shut down approximately 6.7% of total U.S. refining capacity, a move that will lead to reductions in gasoline inventories and short-term price increases. Exxon Mobil Corp. (NYSE: XOM),Phillips 66 (NYSE: PSX)and Valero Energy Corp. (NYSE: VLO)all reported yesterday that they have temporarily shuttered Gulf Coast refining operations.
But Hurricane Isaac's disruptive presence isn't the only strain on the U.S. refining network. There's another major catalyst triggering higher gas prices.
Over the weekend, tragedy struck the second-largest refinery in Venezuela.
An explosion and fire on Saturday at the Amuay refinery in Venezuela killed 48 people, wounded hundreds, and destroyed hundreds of nearby homes. It is the deadliest refining accident in more than a decade.
The government-run Petroleos de Venezuela (PDVSA) owns the plant, which can process 645,000 barrels of oil a day but has been forced to suspend operations.
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Higher Gas Prices Ahead as Hurricane Isaac Takes Aim at Gulf
Hurricane Isaac continues to build strength in the warm waters of the Gulf of Mexico and is now moving west, toward the heart of U.S. oil and gas production.
Hurricane Isaac already has forced several energy giants to shut down major Gulf oil and gas projects until the storm passes. That's going to spell higher gas prices for U.S. consumers.
The emergency response will be the largest challenge to the U.S. energy sector since 2008, when Hurricane Gustav and Ike struck the region. Both hurricanes caused month-long disruptions at off-shore facilities and damaged a number of midstream operations in processing, pipeline, and storage along the coast.
By Monday, the U.S. Bureau of Safety and Environmental Enforcement reported that daily oil production in the Gulf was down 78% and natural gas production down 48%. Energy producers including Royal Dutch Shell Plc (NYSE ADR: RDS.A, RDS.B), Chevron Corp. (NYSE: CVX) and British Petroleum (NYSE ADR: BP) have evacuated more than 346 platforms and 41 rigs.
More shutdowns are expected on Monday and Tuesday as the storm gains strength.
"There's panic right now that this could stage a direct hit on New Orleans or the Chevron refinery in Pascagoula [Mississippi]," Tom Kloza, chief oil analyst for the Oil Price Information Service, told ABC 15 News in Arizona. "The refineries, once they're within 24 hours of either tropical storm or hurricane force winds, they have to start a shutdown.
British Petroleum shut down four oil and gas platforms in the Gulf of Mexico on Sunday and evacuated all of its workers. The shutdown includes the evacuation of Thunder Horse, the world's largest production semi-submersible with a production capacity of 250,000 barrels of oil a day and 200 million cubic feet a day of natural gas.
The company is still under obvious scrutiny of its offshore projects given the Deepwater Horizon spill in 2010 which killed 11 workers and gushed millions of gallons of oil into the Gulf.
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How to Profit from a Drop in U.S. Gas Prices
U.S. gas prices have slipped from their recent peaks of $4.00 and above – is there a profit play here? Indeed, Money Morning Chief Investment Strategist Keith Fitz-Gerald joined Fox Business’ “Varney & Co.” to discuss what’s going on with U.S. gas prices. Watch this clip to hear Fitz-Gerald explain what’s driving gas prices. He also shares two stocks investors can buy to profit from this move – if they act fast.
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Marathon Petroleum Corp. (NYSE: MPC): The Best Way to Turn High Gas Prices into High Octane Profits
Average gas prices currently are about $3.75 according to AAA's Daily Fuel Gauge Report.
That's higher than the average for all of 2011, which was the priciest year ever for gasoline. And what's worse is they're only going higher from here.
But if you think that investing in oil majors will help you overcome the sting of high gas prices this summer, think again.
While prices for both gasoline and crude oil have surged more than 10% this year, stock prices for oil majors like ExxonMobil Corp. (NYSE: XOM) and Chevron Corp. (NYSE: CVX) have been flat.
The dividends these companies pay won't make a dent, either.
It would take the average American something along the lines of a $20,000 investment in a stock that yields 3% to compensate for the surge we've seen in gas prices.
One reason these stocks have floundered is that the recent rise in oil prices has largely been the result of political tensions in Iran, rather than increased demand for oil.
Another is that President Obama has Big Oil subsidies in his crosshairs as he heads into this year's election.
Energy lobbyists have flooded Capitol Hill and Republicans have rallied to the defense of oil companies, but the November election will ultimately decide the fate of the $4 billion of subsidies oil majors get every year.
With so much money at stake, investors are rightfully wary of companies like Exxon and Chevron.
Still, that begs the question: If big oil stocks offer no respite from high gas prices, where can investors turn?
One solution is to invest in the United States Gasoline Fund LP (NYSE: UGA).
UGA invests in futures contracts on unleaded gasoline traded on the New York Mercantile Exchange (NYMEX). It's already up 18% this year.
But there's still an even better option, and that's
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