This is not a prediction but may be a plausible possibility. Consider:
§ With oil currently trading at approximately $95.00 per barrel (down from a recent high of $110), gasoline is approaching $3.00 per gallon.
§ Natural Gas, at approximately $4.00 per MCF, is trading at a heating energy equivalent of $24.00 per barrel of oil. This isn’t intended to suggest that oil will trade at $24 but, as energy users become more confident as to long-term supply and price trends for natural gas, natural gas may take some market share from oil, thereby pressuring oil prices.
§ The advent of fracking has dramatically changed estimates of recoverable natural gas reserves.
§ New extraction techniques and numerous new finds are increasing oil supply.
§ Many oil exporting countries are heavily dependent on oil revenues. Any softening in prices could encourage increased production, further pressuring prices.
§ Despite numerous political problems in several oil exporting countries, which have disrupted production, oil prices have been falling.
To reiterate, this is not meant to predict that gasoline prices will fall to $2.00 per gallon, but they could. In that event, there are likely to be numerous new opportunities and risks. Investors should consider what decreasing gasoline prices might mean. There are some obvious potential winners, such as airlines, cruise ship operators and the motoring public. There are also likely to be some losers, such as the alternative energy industry.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA