A lasting solution to high oil prices

We won't see long-term relief until we see a concerted move toward natural gas.

By Jim Cramer May 31, 2012 8:56AM

We should be jumping for joy that oil has been going down, right? It is what makes us think many of the retailers and restaurants could be doing better than expected. Less money spent at the pump means more money for shoppers.

 

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 those 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 above $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. Tuesday 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 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, and 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 boom driven by lower gasoline prices.

 

 

Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.

  

 


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320Comments
May 31, 2012 11:40AM
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Shoot all speculators!  Better still make them take possession  of the product before they can trade it again and who they trade it to must take possession in there own tanks before they can sell it again. 

 

No shuffling just paper work back n forth like they are now and product still in the ground or on the high seas not even here yet.

May 31, 2012 11:43AM
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My grand father had an old ford pickup in 72 that ran on propane. After he passed we decided to rebuild the truck. We sent the engine out to get rebuilt(it had 250,000 miles on it). The engine builder called us back and thought we were pulling a prank on him because He said the engine had no wear to speak of internally. No carbon build up and the seats looked brand new. Natural gas vehicles do not get as good as gas milage(2 to 4miles per gallon difference) but that is recouped with the lack of wear and tear on the engine and not having to do oil changes every 3000 to 4000 miles. With natural gas that was upped to 12000 to 15000 if then. Also natural gas burns much cleaner cutting emissions from the millions of vehicles across the country( That would make the greenies happy) and  you could stop subsidising the methnol industry and corn prices would fall in turn food prices would fall. Look any way you turn it America was built and runs on cheap fuel. Natural gas is a no brainer because anywhere you dig down 15000 feet in this country your gonna find some. I ought to know. I've been a geologist for 25 years and have worked on thousands of wells old and new.
May 31, 2012 11:40AM
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CNG- Compressed Natural Gas, convert all cars ASAP.  The big Problem, we would cut out all middle men in the market place and Oil.  The  public would be able to fill their tanks at home from their CNG lines in the home.  What a wonderful idea, we could keep all the money home and tell the Middle East to go to Hell.
May 31, 2012 10:12AM
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We will all switch to natural gas and the next day it becomes a commodity that escalates just like oil....Please, that is not the solution to anything. We need to take oil off of commodity trading and regulate it like other utilities.. The public shouldn't be raped at the expense of the market traders.
May 31, 2012 11:56AM
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Simply put it all comes down to greed!!!!!!! Period
May 31, 2012 10:23AM
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I don't often agree with Cramer, but I will on this item.

 

Yeah, he may be a shill, and yeah, he may be wrong a lot of time. The simple truth here is that moving to natural gas will produce jobs. It will cut the consumption of oil dramatically. We can be the first nation to m****duce natural gas engines for commercial use. Convert old oil based heating systems to newer, more efficient natural gas systems. This creates jobs. It gets the US off of foreign oil dependency. Eliminating the need to produce so much diesel fuel frees up capacity to produce more gasoline for our cars, and lowers the cost to producers and consumers.

 

This is a win for the US if either Presidential candidate will support the move. Big oil will contribute lots of campaign finance dollars to make sure this never gets talked about.

May 31, 2012 3:36PM
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Oil prices won't ever be balanced while you have big oil steadily lubricating politicians palms. Never mind that it's destroying our ozone and never mind that wars are being fought over it. It's so inbeded in everything from asphalt to plastics to energy fueling our economy. So it's only fair to say that big oil will continue to flex it's muscle and bully any other type of fuel in order to keep its tentacles into our every day life. I mean come on it only makes sense. Otherwise it will lose it's might and then as the might goes so does the right...
May 31, 2012 11:14AM
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I AGREE !!   Natural gas is where it is at.  Either oil or natural gas, America has enough of both to tell all the other countries in the world to kiss our butts!  We will sell you corn at $150 barrel and see how that feels to you.
May 31, 2012 1:25PM
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Check and see how much gasoline we exported last year. If the problem is refining then how could we export such large quanities?
May 31, 2012 11:04AM
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Too many people with too much power make too much money from oil for it to ever go away, or even lose any meaningful market share. It's the sad reality. They'll ride that horse into the ground, and take the rest of us down with it. This isn't the movies, greed always wins. They KNOW it's a limited resource, yet they still base the world's economy on it. It was foolish from the get go to not have had alternate fuels in production from day one. It was foolish to not start looking before now. Oil is too big to change it now.
May 31, 2012 11:27AM
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If the U.S. could convert only ten to fifteen percent of their vehicles to nat gas it would be a

dramatic step towards energy independence, which is so badly needed. The tremendous

scope of this endeavour however, could take years. Once we get the change in motion,

I think the price of petroleum by products will plummet dramatically.  

May 31, 2012 12:46PM
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Foolish populace with such short memories and lack of education.

 

For Starters take Oil off the futures market, futures market is for farmers that might need to know the price of sow bellies or corn a few months down the the road. You take about 25-30 dollars off a barrel of oil if you get the speculators out of it. They neither explore, nor drill or refine they just speculate. If you order a 100,000 barrels of oil or product, it gets delivered to your door not just held on paper until you can sell it for a hefty profit.

 

Bust up large oil monopolies "remember Standard Oil", it worked a hundred years ago so why not now? Do you think it is a good idea for just a few large oil companies to be fixing, excuse me "setting the price" of  oil. Do away with all tax credits for the oil companies, set their corporate tax rates at 11% for domestic oil produced here in the U.S. 39% corporate rate if they import over 30% of their oil...now talking about an incentive to drill and explore!

 

BTW, change the EPA over to Energy Producing Authority and lay the old workforce off, hire new replacements from the oil industry to staff it....

May 31, 2012 1:19PM
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I'd like to say I'm aware of all the regulations the EPA puts on refineries, but I'm not.  Having said that, I think the oil industry is lying when they try to say they're closing refineries because of over regulation.  The refineries we still have are often running below capacity.  They will tell you it is because of maintenance or some other reason, but I believe it is because they are producing as much gas as they want.  They don't want gas to return to $2.50/gal.  Basic supply and demand.  They're making billions just the way things are, no reason for them to fix it. 

 

It's the same thing with people calling for federal lands to be opened up for exploration.  Companies have leases they aren't using now.

 

As for China not having an EPA - they have some of the most polluted lands in the world.  Their people get sick and die.  They don't care.  Copying them is not  a solution.

May 31, 2012 1:27PM
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Here's a question I haven't seen pondered yet on this comment board.

 

What kind of efficiency can you generate with natural gas as the fuel? If it's cheaper to buy, does it also give vehicles higher MPG ratings than regular gasoline?  Or is it just the next E-85?? E-85 is cheaper than gas, but why the heck would I buy it when my mileage drops disproportionately? Sure it helps the environment...But then I gotta stop and buy gas more often, spending just about the same amount of money in total, with more stops to fillup.

May 31, 2012 1:04PM
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So simple even a Caveman knows how to do it; which brings up the question why hasn't the Obama administration pushed Natural Gas? Because it doesn't fit into their agenda and they could care less about the average Joe!
May 31, 2012 1:33PM
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There is so much nat gas in this country that switching fleets over will not make much impact in the price of nat gas.   They burn it off in North Dakota because so much comes up with the oil and there are no pipelines there yet to take it somewhere.   Yes, oil companies do own much of the nat gas and they are now starting to see the potential.  But without customers for it (fleets, trucks etc) it does them little good.   The good news is that much of American industry that can switch are starting to see the financial benefits - there is so much benefit that they don't need the government to incentive it.   Garbage companies and school bus fleets are prime first adopters because their vehicles come back to the same base each night and can get refueled for the next day.   They are converting.   Cummins engine and Westport Innovations make most Nat gas engines for big vehicles and they are making these engines as fast as they can - read their annual reports.

Then there is the whole argument that we shouldn't be buying energy from those that are not our friends such as Libya, Saudia Arabia, Iran, etc.   If we didnt care about energy from these countries, then we wouldn't need to defend the sea lanes etc.    And what do these countries do with all those petro dollars?   They fund terrorists, build up their military, repress their people.

Then there is the whole argument that nat gas burns cleaner then gasoline or diesel.  Way cleaner.

But the doofus in the white house thinks that electricity is the way to power a vehicle.... I guess he doesn't know that a battery in Minnesota during winter only has about the half the energy reserves as the same battery in a warm climate.   And that the world's lithum reserves is almost all in South America somewhere.

 

Nat gas is the way to go and until all the naysayers on this forum pressure their elected reps, we will continue to sit by and wait and buy oil from the house of Saud.

May 31, 2012 4:59PM
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Oil .. it is so last century..    But now "they" are selling us new ideas - electric car - zero emissions. Right.. Another hoax. Batteries and more batteries to sell, use and dump in the environment. CNG, lithium-ion, blah, blah,  blah.

But "they" won't give you the real solution because "they" cannot charge much for it.

 The most abundant element on this planet can move ships, airplanes, rockets and yes cars. And the byproduct of using it is  -  water vapor that turns into rain and cycle starts over again and again.  But that would be too easy and too cheap and it would not give you much clout in the world.

No leverage.. 

So we'll continue to lie and deceive human race that this is the best we can do ..    Shame .

 

May 31, 2012 1:22PM
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We need to build more nuclear plants along the Great Lakes where there is plenty of water, low earthquake risk and no tsunami risk.  This area desperately needs more jobs & nuclear plants provide lots of construction & technology-related jobs to build & sustain.  The cost of living is also much more affordable meaning workers do not need the huge salaries as coastal cities to have a comfortable way of life.  As this is being done we need to improve our electrical grid across the country & our ability to fix it quickly/reroute if key points in the grid are attacked by terrorists. 

 

IMO we should have spent stimulus money on these improvements rather than bailing out banks.  Bush, Obama & Congress were idiots for giving banks more money.  Let Wall Street fail.  Let the banks fail.  Smaller, solid companies will rise in their wake.  I just found-out the owner of my mortgage company, GMAC, is filing for bankruptcy.  Too big, powerful & greedy for their own good.  Fools and their money are quickly parted.  We need to stop electing foolish people into office who cannot see past their own re-elections...  We need LONG TERM plans NOW!  Vote out incumbents until they get the picture that we want solutions not just pre-election hype.  I am no longer Democrat or Republican...  I will keep voting out incumbents until they start keeping their campaign promises.

 

We can also bring our troops home and hire them to protect our energy plants (namely nuclear).  Between nuclear power, natural gas, coal & our own oil reserves we can be self-sustaining.  The Middle East can blow itself to pieces & we can survive just fine.  Let China spend the big bucks to patrol the Middle East.  China will need a lot more resources than us as 1 Billion people gradually move into the lower middle class and start using more energy.

May 31, 2012 4:29PM
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RlM

 

Ten Years ago the Oil Companies were shipping (10) Billion Gallons

of REFINED fuel to buyers outside the United States. Today (117) Billion

Gallons of REFINED fuel is shipped overseas.

There is no shortage of fuel or refineries, just more GREED.

And by the way, Natural Gas has supply limit's and would be next on the

list of dwindling resources.

.

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