Cramer: Gasoline Prices have not Reached Full Decline despite Dropping Oil Prices

On “Mad Money” of CNBC, Jim Cramer said that even though oil prices recently declined by over 3% to reach its lowest level in almost six months, gasoline prices have not fallen to the maximum extent possible. Gasoline price is not simply a function of oil price, it is also a function of the type of oil being used (called the blend) and the price of refining that particular kind of oil.

 

Cramer continued that in the United States, gasoline prices are based on Brent crude, a kind of sweet crude oil utilized as a standard for other crude oil prices. However, even following the steep fall in oil prices, Brent keeps on trading at over $100 per barrel.

 

The recent price of light, sweet crude of the United States dropped to its lowest level since October of 2011 at almost $87 per barrel. But, Cramer notes that that kind of oil is almost entirely irrelevant to gasoline prices in the U.S. As it appears, Brent crude oil price is the largest influence of the country’s gas prices.

 

In terms of costs for refining, Cramer said that the United States’ refining capacity isn’t sufficient to turn oil of lower prices into more gasoline. The business of refining has been struggling recently that is why plenty of gas and oil firms have been shutting refineries. Cramer thinks that that the price of updating those facilities to a level that is sufficiently clean for regulators of the government is simply too much for many of these companies throughout America.

 

Should the gasoline price keep on falling, Cramer believes that it will help small businesses across the country, since it will be cheaper to travel. The entire tourism industry, from Disney World to casino operators, for example, stands to benefit due to higher traffic. Even hotels will have additional business.

Lower gasoline prices will also make extended commutes pleasant, so real estate firms may also benefit. After all, plenty of newly developed homes are far from the location of most jobs.

 

Cramer thinks that it is time to launch oil alternatives such as natural gas. It is widely believed that this type of energy source is ideal as fuel for transportation. However, it gets minimal attention from the government of the United States. Perhaps changes in attitude will occur after the upcoming election.

 

By: Chris Termeer

Chris Termeer

Chris Termeer is an oil and gas consultant, industry commentator and analyst. His book, Fundamentals of Investing in Oil and Gas provides a comprehensive overview of all aspects of the oil and gas industry, including exploration, drilling, production, storage, transportation and refining, to name but a few.

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