Investors and readers know about the barely-adequate crude oil refining system in the United States.

It's hard to believe, but when the U.S. opens its next refinery, it will be the first new one in more than 20 years. Meanwhile, demand for refined crude products, including gasoline, continues to rise. That's why it makes sense to consider a refining stock or two, such as Valero Energy (NYSE: VLO).

Valero is the largest oil refiner in the United States, but that's not the only compelling dimension to VLO. Valero also boasts what oil analysts call "refining flex." Valero can process large amounts of lower-cost heavy and sour crude -- refining these into cleaner-burning, higher-margin products, including low-sulfur diesel.

Another VLO advantage: Valero has refineries throughout the U.S., in New Jersey, Delaware, Louisiana, Oklahoma, Tennessee, Texas and California, in addition to facilities in Aruba and Canada. The company's overall production capacity is 3.1 million barrels per day. The Reuters F2007/F2008 EPS consensus estimates for VLO are $8.19/$8.16.

The risks? A major U.S. economic slowdown or recession would hurt VLO's results. Further, margins on selected product grades may narrow in 2008, but many grades will still be above historical norms.

The First Call mean rating for VLO is: Buy. [21 firms.] Mean 2008 target: $80.40. [high: $110, low: $51.]

Stock Analysis: Valero is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than one year should be rewarded from VLO's shares. Sell / Stop Loss if you were to purchase shares in this company: $44.

The markets have two additional oil industry data points to digest Friday, and through the weekend:

First the good news: OPEC (Organization of Petroleum Exporting Countries) has increased oil production in response to sustained +$90 per barrel prices.

OPEC's 10 members bound by output targets, all except Iraq and Angola, pumped 26.98 million barrels per day, up 180,000 barrels per day from September 2007, according to the survey of oil firms, traders, OPEC officials and analysts, Reuters reported Friday.

A couple of days ago it looked as though we were well on our way to $70 oil, but prices have fallen over $1 a barrel today following this week's inventory data from the Energy Information Administration.

In its report the EIA indicated that oil stockpiles last week rose by an impressive 6.9 million barrels and gasoline reserves increased by 1.8 million barrels. With both oil and gasoline inventories up traders have pushed oil down $1.08 to $68.02 and for the moment has put the brakes on the recent bullish run for oil.

Refinery production has been a vital area of concern this year with American refineries being unable to maintain output levels running above the critical 90% range. Even though gasoline inventories were able to jump last week, America's refineries are not able to take responsibility for the recent upward move. The EIA reported that refinery output actually fell last week 1.6% down to 87.6%. The truth behind last week's increase was actually a rise in supplies of blending components for gasoline.

Even with today's inventory data and subsequent pullback in oil prices I do not think that we have seen the end of this current bull oil market. For now things are cooling off, but let's not forget that we are still only at the beginning of the summer driving months, and with all the violence that is taking place in the Middle East these days, there are still plenty of factors that could, and should, lead to higher prices by the end of the month. We may see oil pull back another couple of dollars down to $66, but I for one will not bet against $70 oil by the end of the month just yet.

Michael Fowlkes has worked as a stock trader for seven years and spent the last two years working as an analyst for the online investment advisory service Investor's Observer.