This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Here's Why Oil Is So Expensive

Stocks in this article: UNG USO CMI CLNE UPS FDX

United Parcel Service (UPS) and FedEx (FDX) are both using -- and have announced plans to continue to use -- natural gas as a replacement for diesel fuels.

While it's true it will take time for demand to shift from diesel to natural gas, two important facts need to be understood. First, the market is a forward-discounting mechanism and prices will tend to reflect what the market believes they should be in six to 12 months into the future.

Second, diesel shouldn't be expected to drop 3% if demand moves lower by 3%. There is not a linear relationship between the supply and demand curve. A 3% reduction in demand is likely to result in a 6%-10% drop in price.

While it's possible for natural gas and diesel to reach cost-per-mile parity, I would not expect it to happen anytime soon. Natural gas engines are currently more expensive and it's much harder to travel with the lack of refueling stations.


Whether using natural gas or diesel engines in automobiles, China has now become the largest auto market in the world and it may be hard to make an argument that China's energy consumption is going to take a significant downward turn anytime soon.

China's growing energy demand growth should not be considered the same as European or American growth. Between domestic and foreign sources, China can be expected to maintain a healthy balance between needs and sources.

China National Offshore, China National Petroleum and Sinopec do not have the same inconveniences securing energy as American and most European companies have. Take Iran, for example. While U.S. politicians are spending time trying to figure out ways to make Iran do what it says, China is inking deals and promoting good will.

It would appear Europe is also playing the "do what we say" game, and it remains to be seen who will win. In the meantime, China appears to be the biggest winner. What Europeans pay in increased energy prices , China receives for less.

Don't expect a "Foreign Corrupt Practices Act" and other distractions designed to prevent bribery or anything else getting in the way of China's appetite for energy. The net result is, China can be expected to aid in the world production supply in relation to world energy prices. If you believe China is going to drive oil up to $200 a barrel, you should not count on it.

End result: Expect that Europe, in general, will not drive prices higher; China will mitigate price movements; and the U.S. will increase in production to drive prices lower.

3 of 3

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs