SOURCE: Rothman Research

Rothman Research

May 06, 2010 08:57 ET

Higher Prices Good for Oil & Gas Companies Not for the Economy

JOHANNESBURG, SOUTH AFRICA--(Marketwire - May 6, 2010) - - Oil prices are still tumbling as they reached $79.98 a barrel following growing concern about the European debt crisis in Greece and other southern countries. Another oil spot of environmental proportion staining the oil market this week is the massive oil spill in the Gulf of Mexico. This disaster so far has not had a major impact on oil prices. Current prices are still close to $20 higher than a year ago. Higher prices are one of the key factors that drives oil companies profits up and this was quite apparent for many major integrated oil and gas companies such as ConocoPhillips (NYSE: COP) which reported a profit of $2.1 billion or $1.40 per share as compared to $840 million in the same quarter in 2009. Profits helped offset losses incurred from the company's refining and marketing segment which was in a tough spot as they could not pass the soaring fuel costs to end-users due to low energy demand in the current economic environment.

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Oil prices experts believe that the current value of oil per barrel is not a fair representation of the demand versus supply, but rather speculators at play. A fair value of oil at this time is estimated at $60 per barrel. According to industry projections, oil could move to the $100 benchmark in the next 2 to 3 years. However, should such a surge in oil prices occur in 2010 the impact on the recovering economy could be overwhelming as consumer confidence would take a serious blow. 

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Royal Dutch Shell Plc (NYSE: RDS.B) has recently announced its first quarter 2010 unaudited results and the company's CEO, Peter Voser, has also attributed the positive earnings improvement for his company to higher oil prices amongst other drivers.

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