We should be jumping for joy that oil has been going down, right? It is what makes us think that many of the retailers and restaurants could be doing better than expected. Less money spent at the pump means more money for the shopper.
Lots of stocks of companies beyond restaurants and retailers could be winners. Hotel companies benefit from additional travel. Casino companies, particularly in Las Vegas, could be winners, because it costs less to drive to these destinations. Even homebuilding companies might be winners, because many housing developments are located away from where the jobs are. Lower gasoline prices make longer commutes more palatable.
There's only one problem. Gasoline prices aren't going down the way they should. You see, gasoline isn't just a function of the price of oil. It's a function of what price you are using and the cost of refining that oil.
First, we price our own gasoline off of Brent crude, which, even after this huge decline in oil is still over $100. The West Texas price you often see quoted is almost completely irrelevant.
Second, there simply isn't enough refining capacity on either coast to turn that lower-priced oil into gasoline. The price of gasoline isn't being kept up artificially, because companies have been closing refining facilities left and right. It's been a terrible business for so long that companies like Sunoco (SUN)which have been in the business for ages, have virtually given up on it. The costs of modernizing these facilities and making them clean enough to pass muster are simply too prohibitive.
So in many places, especially in California, gasoline has barely budged from higher levels.
Which brings me to the real issue: actual relief from the price of crude oil. The only way we are going to get the price of oil down to where it is not an immense tax on the American people is to offer an alternative to oil, namely natural gas. Last night on "Mad Money," we heard from Peter McCausland, the retiring CEO of Airgas (ARG), that his company is debating converting his immense fleet of trucks from diesel to natural-gas-powered engines.
Twenty-five percent of our imported oil goes to making diesel for trucks. You want to see the price of gasoline come down at the pump? Forget about building more refineries. It's not going to happen. The best way to do it is for the government to encourage the use of natural-gas vehicles. Further, we want oil use away from cars to go down, and as we heard from Consolidated Edison's (ED) CEO last week, there are still thousands upon thousands of buildings in this country, 7,000 in New York City alone, that are still heated by oil.
You get buildings to switch to natural gas, you get trucks to switch to natural gas, you will find yourself with so much oil that the price is going to come down huge in this country.
Right now we are hostage to the whims and finances of a few refiners. With a little encouragement by the government, we can break that chain entirely. But do we have the will? Right now, neither presidential candidate is talking about this. I bet the winner in November could be the candidate who says he can smash OPEC, clean the skies and bring employment to key states like Ohio, Pennsylvania and West Virginia, simply by saying that the nation's fuel should be natural gas and that we will incentivize those who switch.
Only then will we be able to have a lower-gasoline-price-inspired boom.