Insights from Tom Kloza
Tom Kloza: GasBuddy really took off with the proliferation of smart phones, which corresponded very closely to a period of wildly fluctuating fuel prices. Gasoline prices are “magical” so an app that can alert a motorist to fuel savings is valuable and persuasive. Fuel prices are in the face of consumers, and people who don’t keep track of thousands of dollars of investments give great attention to the price they pay each week at the pump.
MutualFunds.com: What is your main role and how does your long record in the energy space apply to what appeals to the site’s audience?
Tom Kloza: My background is as an oil reporter and analyst and I suppose I can distinguish between the signal and the noise in world and North American oil market moves. People may believe that gasoline prices move based on whimsy or caprice, but most price moves are rooted in the futures, spot, and local wholesale markets. More than perhaps any other commodity, oil prices are very “tidal” and the difference between ebb and high tides for gas prices evokes images of the Bay of Fundy.
MutualFunds.com: We’ve seen oil prices correct significantly in the last several months. Is this the main factor driving down gas prices?
Tom Kloza: Besides oil prices being one influence, what other factors contribute to gas price fluctuations? Oil is an incredibly dynamic asset class and can often be bipolar. It rallied too much on the ISIS threat in the Middle East in June, and it may indeed move too low now that there is the threat of an OPEC versus non-OPEC producer price war. The downswings we saw for gasoline in September were mostly about robust U.S. refinery output and the drop in demand that comes after Labor Day. The drops in October have been all about the crude. For most of my life, I’ve dealt with a “fear premium” for crude oil. More recently, there has been a “fear discount” tied to worries about a price war.
MutualFunds.com: Do you see retail stocks benefiting from declining gas prices, and does that make you bullish for consumer spending this holiday season?
Tom Kloza: Consumers who live paycheck-to-paycheck should have more to spend; perhaps $60 per motorist more than a few months ago. The extra disposable income for folks that use heating oil in the winter may save $500 or more, and spend some of that on other items. My sense is that the road travel business; trucking, and perhaps restaurant operators will be among the winners. Consumers should have more to spend for Christmas shopping, but gas price drops last year and in 2012 didn’t translate into robust holiday spending. By the way, I believe that gasoline retailers—companies like Caseys, Susser, CST, The Pantry, Couche-Tard—will have robust earnings thanks to more margin on The Street.
MutualFunds.com: As for your Oil Price Information Service, could you describe what your role is for clients of the firm?
Tom Kloza: I try to provide guidance for subscribers who buy and sell oil. The difference between paying attention to price trends and buying smart can represent thousands of dollars per day for a single station operator, and much more for refiners, traders, and large marketers. OPIS can really help fuel-buyers get ahead of price increases, and delay purchases in front of price decreases.
MutualFunds.com: Is it possible that the proliferation of solar energy projects may be starting to impact the energy markets as a whole?
Tom Kloza: We don’t really see much impact from solar energy in the fossil fuels’ space, although cutting down on a carbon footprint is admirable and may one day be very cost-efficient.
MutualFunds.com: In looking at your crystal ball, what do you think will be the price range for crude oil, natural gas and gasoline prices looking out 6-12 months?
Tom Kloza: I think the notion of an “oil price war” is a one-in-three possibility, and can’t be ignored. But I believe it’s more likely that we’ll see the major crude oil benchmarks (WTI and Brent futures) trade between $75 bbl and $110 bbl. That’s a big range, but it’s a volatile market. Retail gasoline prices are likely to be as low as $2.85-$2.95 gal in the autumn and winter months and as high as $3.50-$3.75 a gallon in typical spring and summer disconnections. Ten months ago, we predicted that U.S. gasoline prices would average around $3.39 a gallon in 2014, and that may be only a few pennies off the final aggregate number. Next year will see a similar average between $3.30-$3.40 a gallon, with California perhaps well above that range thanks to the impact of carbon legislation in the Golden state. I’m not as close to the economics of natural gas, although I can tell you the industry sees prices on either side of $4 MMBTU as a reasonable pricing point.
The Bottom Line
DISCLOSURE: The views and opinions expressed in this article are those of the author’s, and do not represent the views of MutualFunds.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.
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