It has been a banner year for energy, but as you can see from below, the impact has been stronger for gasoline than for any other component:
The first three months of next year should be worse for gasoline than what we saw last year as oil prices rose. So what caused the drop? First, gasoline companies have been making a big push in the last year to sell off their inventory by shifting to high-yield crude oil. One thing I’ve always liked about OPEC is that it’s a group of very big oil producers that seem to go to war with each other a lot more than they seem to be on each other’s good side. I also suspect that low gas prices have been driving a lot of the heavy selling. It’s a good bet that if oil keeps dropping down to $40 USD/barrel, there won’t be that much left for the heavy-selling companies, so they’re going to have more and more to sell to compete. Here are some estimates of how high gasoline prices could drop:
The above are estimates from the Financial Times, who do a fairly thorough job of estimating the fuel price dynamics. You can see the numbers from their chart here . Most of the companies they project to be losing money here are big oil companies, and the ones that will be profitable might be smaller companies as well. The overall net cash position is roughly the same as it was a year ago. So with gasoline prices falling, gas prices won’t come back down much further.
Energy has been a very big story for the Dow this year, and a lot of people are hoping that rising crude oil and related prices will help the company’s earnings per share. A lot depends on how this turns out, but so far that hasn’t happened, and neither has falling crude oil prices.