Oil Down, Gas Up

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If you're a motorist, you have had reason to smile. Gas prices have been creeping downward since hitting a national average high of $1.75 a gallon around Labor Day. Currently, the average price for a gallon of gas in America is about $1.47.

But don't expect prices to keep dropping. Some expected the price of crude oil to fall after Saddam Hussein's capture. But Iraq and its oil industry remain vulnerable to saboteurs and terrorists, with two bombs exploding at police stations in Baghdad yesterday, killing nine Iraqis. Crude oil inched up 13 cents to $33.17 per barrel yesterday following the attacks, after having dropped by $1.30 on news of Hussein's capture.

The price of oil largely depends on OPEC, which is targeting a price range of between $22 and $28 per barrel. But with inventories of crude oil as well as natural gas shrinking and demand picking up as winter approaches, prices aren't likely to get cheap anytime soon. The Energy Information Administration is projecting that gasoline prices in 2004 won't get much lower than 2003 levels.

Meanwhile, natural gas prices have skyrocketed in recent months, jumping 50% just since Thanksgiving. A New York Timesarticle points out that since there doesn't seem to be an apparent reason for the increase (such as the usual suspects of short supplies or cold weather forecasts), politicians and some industries have begun questioning what's going on. One suspicion is that hedge funds and financial firms may be manipulating prices.

So what's an investor to do? W. D. Crotty recently suggested that some oil stocks are trading at attractive prices and are worth further research. Think ExxonMobil (NYSE: XOM), BP (NYSE: BP), Royal Dutch (NYSE: RD), Shell (NYSE: SC), and ChevronTexaco (NYSE: CVX). Investors looking at natural gas vendors might want to follow developments in ongoing investigations. If any firms have been up to no good, they and their stock prices might be punished. Duke Energy (NYSE: DUK) and Dynegy (NYSE: DYN), for example, took some lumps after investigations into their energy activities.

Have your own theory about what is inflating the price of gas? Spill it on the Oil and Gas discussion board.