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Will Rising Oil Prices Fuel More Drilling?

8 February 2013 in Trading Ideas

Something has been unseasonably high in the last few weeks, and it’s certainly not the temperature.

Gas prices have risen by more than 25 cents a gallon since the beginning of the year. Analysts say that the bump in gas prices usually expected in February or March has hit us much earlier than usual. Daily gas prices have been setting all-time records, and topped $3.52 a gallon in January, four cents higher than the year before.

All in all, consumers have been spending more on gasoline than they have in years — four percent of their pre-tax income, according to the Energy Department1.

Industry analysts point to several factors, including a refinery shortage, rising crude oil prices and a California gas shortfall that is forcing a diversion of gas from other parts of the country. The continuing volatile situation in the Middle East, especially in regard to Iran, doesn’t help matters2.

Rising fuel prices increase political pressure on policymakers to expand domestic drilling for oil, including expansion to current no-drill zones. These areas are estimated to hold 131 billion barrels of oil — about as much as there is in all of Kuwait. The Drill, Baby, Drill! motif includes companies active in oil exploration, drilling, and related fields that could stand to benefit from a surge in domestic oil production.

The companies with the biggest shares of the motif include Canada’s Cenovus Energy and Devon Energy of Oklahoma City; together, they represent nearly 20% of Drill, Baby, Drill!



Tags: drillling, oil