by Peak Energy Strategist Research Team
Everyone is starting to feel the squeeze to their wallet after they visit the gas pump.
In fact, Americans are spending record amounts of money on gasoline according to a recent article by Jonathan Fahey of the Associated Press.
In 2011, the typical American household spent $4,155 filling up their gas tanks. Fahey noted that was a record and a budget-busting 8.4% of the average family’s take home pay, which hasn’t been this high since 1981.
And unfortunately, this wasn’t the only record set in 2011… the average price we all paid for a gallon of gas at the pump was $3.50 across the nation.
Higher gas prices are generally overlooked when the economy is trucking along at a healthy pace and we can afford the increase. For the last ten years the average chunk gasoline stole from family income was 5.7%.
But, as we know, those were somewhat better times. Most of the United States is still stuck in a recession, and face a potential double-dip that could occur in 2012. In times of economic hardship, higher gas prices cause even more damage to a family’s bank account.
The Gas Pump in 2012
What can we look forward to in the year ahead? Breaking the record for higher gas prices yet again.
Consumer confidence will take a hit as well, as people will be hesitant to head out and spend their hard earned money on other products.
So why is gas going up in price?
There are two reasons…
First, the Gulf coast refiners have had limited access to West Texas Intermediate which causes a substantial amount of U.S. gasoline to be refined from Brent crude.
As shale drilling continues to grow, there is a surplus of oil heading in to the huge Cushing Oklahoma facility than it can refine. This has caused West Texas Intermediate prices to be depressed in comparison to Brent crude.
Due to the shortage of WTI supply, the Gulf coast refineries have been forced to purchase higher priced Brent to continue to run their refineries at full pace. All this will start to change when the Seaway pipeline reserves start up in 2012.
Using some simple math, we can effortlessly explain our second reason. Simply put, unless the world population growth miraculously hits zero, we will continue to use more and more energy around the globe.
We added 78 million more people in 2011. Look back at our whole human history, and you will see that in 1800 the world’s population first reached one billion people. What is amazing is that in the past fifty years, the world’s human population has jumped from three billion people to seven billion.
So what does this have to do with gas prices?
Simple supply and demand; as more people are born, more people will need food. More food requires more energy to produce it, and more energy will mean more oil (and lots of it).
It is a simple rule: a finite, dwindling supply (oil), paired with swiftly growing demand will increase its price over time. This will make oil extremely expensive and in time, totally unsustainable.
WTI Cushing Crude Oil Price
Just as it has done is the past, oil prices are going to increase. WTI’s is currently right above $100 a barrel, and in 2012, will continue to move toward the price of Brent. And both will maintain price increases for reasons we have mentioned above.
Get Paid for Higher Gas Prices
You don’t have to sit idly by and watch your wallet shrink as gas prices increase. You can take action and own stock in oil and gas companies that are set to benefit.
If you already have your portfolio filled with or are looking to add some U.S. oil transporters and producers, you will be happy with the increased WTI prices to come.
Higher WTI prices go right to the oil and gas company’s bottom lines, and in return, to all shareholders.
If you are looking for a great play on shale look no further than Continental Resources Inc. (NYSE: CLR). As we noted before, domestic companies like Continental are set to benefit from growing WTI prices.
If you are looking for pipeline plays you might be interested in Kinder Morgan Energy Partners (NYSE: KMP), who recently purchased El Paso Corp. (NYSE:EP) and deals with natural gas and oil transportation.
And if you are looking for an added transportation play, Canadian Pacific Railway Limited (NYSE: CP) is a rail carrier in the right place at the right time.
Oil production in the Bakken shale has outgrown pipeline capacity in the region, which can partially be attributed to the delay in construction of the Keystone pipeline.
Right now, a large amount of oil from the region is being shipped by rail. And even if the Keystone pipeline is built in the near future, rail shipping will continue to take place as production increases at a rapid pace.
All investors need to do is learn to ignore the dramatic price swings that they see on an almost weekly basis. What you really have to remember is simple: there will be more people, more demand for oil, more oil being produced, and higher oil prices.
Investors should consider getting into pipeline plays on market dips. Over the last few months, there have been plenty of opportunities to do so, and in the months ahead there will probably be even more.
Peak Energy Research Team