Here are some of the questions on peoples’ minds: How high will the price of gas go? Will it cause a recession? What should the government do about it? What can families do about it? What stocks will be hurt by it? Which will be helped? And what are the alternative sources of energy that we should be developing to eliminate our dependence on oil?
Quick answers to the questions: I don’t know, maybe $4 a gallon by year end. It will cause a significant economic slowdown. The government should require automobile companies to increase cars’ miles per gallon – and the automobile companies should have the market sense to follow the demand. After all there are six month waiting lines for the hybrid Prius and GM and Ford are cutting prices to clear their lots of gas guzzling SUVs and trucks. Families that can afford to should switch to hybrid cars. If possible, they should car pool more often, and take public transportation.
Stocks that will be helped include the big oil companies, refineries, natural gas explorers, coal companies, and oil services companies. Stocks that will suffer include the automobile companies, the airlines, low-end and middle-tier retailers, and possibly Starbucks and other vendors of discretionary items that might get squeezed as commuters give up life’s little luxuries so they can afford the gas they need to get to work.
There are many sources of alternative energy none of which have gained much market share over the last 20 to 30 years. These include solar, wind, geothermal, hydrogen cells, coal shale, ethanol and probably others. I am not familiar with the economic advantages and disadvantages of each of these. However, I believe that a change in the price of oil from $30 to $70 per barrel inevitably changes the economic calculus of these alternatives.
When I hear the good people of Cheyenne, WY calling for politicians to take action on these alternative fuels or prepare to be voted out of office, I realize that $3 a gallon gasoline is pulling America together in a way that would have made Howard Beale proud.