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Cheaper Gasoline Could Mean More Gifts From Santa


...consumers will look at their budgets and realize they've got the cash to upgrade their wardrobe, buy that new iPod, or maybe score a big-screen plasma TV.


I love conspiracy theories. Some make me smile; others make me grind my teeth. One particular example of the latter is the theory that's making the rounds about how big oil companies are helping to keep the ruling Republican Party in power by dropping gas prices going into the November elections.

Never mind the fact that virtually every big oil merger took place before President Bush took office in January 2001. Go ahead and check it out -- I've cited them multiple times for my firm's subscribers -- but if you're looking for a Republican/"Big Oil" conspiracy, you might not be able to handle the truth. Or as President James A. Garfield said, "The truth will set you free, but first it will make you miserable!"

Dig as deeply as you can to see whether President Clinton, Vice President Gore or Energy Secretary Bill Richardson protested the mergers of Exxon and Mobil (XOM), or BP and Amoco (BP), not to mention the latter group's subsequent purchase of ARCO. The list goes on and on. The fact is, you can buy into the theory of Big Oil cutting gasoline prices to save the Republicans, but when it comes right down to it, that dog just don't hunt!

Oil trades 'round the clock, truly 24/7. The price paid is influenced by variables beyond Big Oil or Republican control. Sure, Iran President Mahmud Ahmadinejad can talk tough and perhaps squeeze the shorts heading into the less-liquid weekend trade, but can Bush or Big Oil keep a hurricane out of the Gulf of Mexico? I don't think so.

In other words, three little words actually drive oil and gasoline: supply and demand.

Beneficiaries of Lower Gasoline (Other than the Republicans!)

OK, many laughed when, back in August, it was predicted that consumers would be paying closer to $2 per gallon for gas than $3 per gallon. But like many of you, I have been paying sub-$2.50 per gallon for the past three weeks and loving it! To wit I gassed up this weekend for $2.18 and I'll bet it's even closer to $2 this weekend.

It almost feels like I won the office football pool, or got an unexpected tax refund. It's money in my pocket and, even more, it's psychologically satisfying. I suspect the same consumers, upon whom the bears were counting to go into their shells hunker down and stop spending, are feeling pretty good right now. A quick look at the math tells why I'm right.

Americans consume roughly 320.5 million gallons of gasoline per day, or nearly 3,700 gallons per second. At $3.10 per gallon, that meant that in July we were spending $992 million per day. Now gasoline prices nationwide average $2.38 per gallon, so the same math ($2.38 x 320 million) gives us a daily expenditure of $761 million. That's $231 million per day, or $7 billion per month. I can't help but think that consumers will look at their budgets and realize they've got the cash to upgrade their wardrobe, buy that new iPod, or maybe score a big-screen plasma TV. Without offering advice, one recent Heat Seeker hit that could benefit is BJ's Wholesale Clubs (BJ).

No positions in stocks mentioned.
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